Like it or not, tax season is here. For many taxpayers, just thinking about the experience causes stress and anxiety. But just like going to the dentist, the more preparation you’ve done up front, the less painful the experience.
Here are 6 tips that can help you get the most out of tax season.
1) Review the past tax year
Looking back on last year’s tax year can make this year go smoother in a few ways.
Improvements
Was there anything you could have done differently last year? For example, maybe there were tax credits that you weren’t aware of or documents you couldn’t easily find. A more organized system can help you save time and money.
Changes
Were there any major changes to your status? Perhaps you got married, got divorced, welcomed a baby, switched jobs, celebrated a milestone birthday such as turning 59 ½ or 70 ½. These are just a few life situations that may have major tax implications so best to do your research or consult a tax professional.
2) Decide whether or not to itemize deductions
Determining if it makes sense to itemize your deductions or claim a standard deduction is important because it will set the stage for what documents you keep and how you organize them. Keep in mind that not every dollar you spend is deductible – so it may make more sense to take the standard deduction. Some of the most common itemized tax deductions include medical expenses, charitable contributions, mortgage interest deductions, and losses related to theft or a natural disaster (no deficit of those in 2017!). The Internal Revenue Service (IRS) has a draft form that can help you assess your situation. If you do not have enough itemized deductions this year, you might consider bunching your itemized deductions every other year by maximizing your deductions every other year.
3) Maintain good record keeping and organize files
To ensure a smoother process, the IRS urges you to make sure you have all necessary documents before you file your return. Making a list that you can check off as you receive them will ensure that you don’t miss necessary documents that you should have received from third parties. For instance, Form W2 from your employer, Form 1099 from banks, 1095-A from the Marketplace if you’re claiming the Premium Tax Credit are some of the most common forms to be on the lookout for. Keep in mind, the IRS also recommends that you hold on to the last three years of tax returns and supporting documents.
4) Save receipts
Don’t forget to save receipts that go toward deductible expenses. For example, if you rented out your home via Airbnb, you may be able to deduct fees for things like cleaning or advertising. A major home improvement such as a new bathroom, water heater, deck, or furnace may be tax deductible provided it’s not a repair. Keep your receipts because if the capital improvement(s) adds to the initial cost basis of your home, you also get an exemption on that additional amount when you sell. If you’re self-employed, you may qualify for a mileage deduction. Diligently documenting your mileage and storing it in a separate folder will go a long way should the IRS run an audit on you.
5) Estimate payments
The booming on-demand economy has expanded opportunities to generate additional income. If you work as a contractor for companies like Uber, Lyft, or Axiom, you will need to file on a quarterly basis for taxes, social security, and Medicare – but only if you owe more than $1,000. Depending on your tax bracket, plan on filing quarterly taxes if you generate income greater than $10,000 that year. Failing to file is not fatal, but it can result in pesky penalties.
6) File early
The good news is that you have until April 15, 2018 to file your 2017 taxes (without being granted an extension). But that doesn’t mean you should wait. Filing early has numerous advantages:
• Quicker refund. Last year, the IRS gave 73 percent of taxpayers a refund. Filing early increases your chances of receiving your refund before the IRS becomes bombarded with filings.
• Avoid penalties. Take heed the old adage ‘Haste makes waste.’ Rushing to file because you’ve waited to the last minute means a greater risk of making mistakes resulting in penalties, fines, and even audits.
• Prevent identity theft. According to the Identity Theft Resource Center, 790 data security breaches in 2017 exposed more than 177 million personal records by June 30, 2017. When you file early, identity theft hackers have less time to fraudulently file on your behalf, preventing them from taking your refund or worse, making a mess for you to clean up for Uncle Sam. IdentityForce has published a list of the worst data breaches in 2017. You can also check with some of these, such as Equifax, to see if your personal data has been breached and be sure to sign up for a credit monitoring service.
So what are you waiting for? E-file easily courtesy of Uncle Sam at IRS Free File.
Sources:
https://www.irs.gov/newsroom/get-ready-for-taxes-plan-ahead-for-2018-filing-season-to-avoid-refund-delays
https://www.inc.com/sean-stein-smith/5-ways-to-get-organized-for-2018-tax-season.html
https://www.irs.gov/newsroom/get-ready-for-taxes-plan-ahead-for-2018-filing-season-to-avoid-refund-delays
https://investorplace.com/2017/04/4-tips-to-get-ahead-of-your-2018-tax-return/#.Wi7iszdryUk
http://www.doublerule.com/u/blog-6-tips-on-preparing-for-tax-year-2018
https://www.investopedia.com/taxes/file-early-tax-return/
https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/greatspeculation s/2017/10/25/how-individuals-can-save-on-2017-taxes-before-the-end-of-the-year/&refURL=https://www.google.com/&referrer=https://www.google.com/
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