It’s that time of year again! Get ready to break out the calculator and pencils; dig out the enormous pile of receipts, tax forms and pay stubs, and get to work. Drowning in paper and getting numb from all those numbers? Take heart! As soon as you’ve got it all organized and filed, you don’t need to think about taxes again until next year.
Failure to understand certain tax nuances can become costly. Here are some tips to help you be successful in the new tax season.
Start getting organized now
It might be tempting to wait until the tax deadline looms to start thinking about filing, but you stand a better chance of getting the most out of the system if you file carefully and rationally. As soon as you receive your W-2 from your employer, begin by making sure the information matches your pay stubs. Then, begin by gathering relevant documents, including last year’s return, any relevant property data or real estate documentation, proof of charitable donations, and receipts for medical, business, or education expenses.
Check your current W-4 form to make sure you’re claiming all the allowances that make sense for you. Also, make sure your employer isn’t over-withholding or under-withholding money from your paycheck. At the end of the year, your goal should be to owe no money and receive no money from the IRS.
Understand what money is taxed and what isn’t
Specific accounts in the U.S. are exempt from taxation. For instance, growth and earnings in a Roth IRA aren’t taxed. Neither is money in a flexible spending account, which can be used to pay for medical or childcare expenses, or income from a 529 education plan, which can be used to save for higher education.
Most taxpayers understand that charitable donations can be deducted from taxes. But, the average consumer typically overlooks a host of other possible deductions throughout the year. For instance, parents may deduct the cost of babysitting if they volunteer at a charitable organization. Comb through your year and don’t be afraid to ask questions that could lead to the right deductions.
Always file taxes – no matter what
In the eyes of the IRS, late is better than never. Even if you’re having a difficult time getting the documents together and know you’ll miss the deadline, be sure to file, eventually. There’s no penalty for missing the April 15 deadline if you are owed a refund, you’ll just get your cash back later. If you’re more than three years late, any unclaimed tax refunds are automatically turned over to the U.S. Treasury.
If you’re confused about any portion of your taxes or feel you’re not receiving all the deductions you should, seek help. Free tax return preparation programs are available to people with limited incomes (generally making less than $54,000 a year), people with disabilities, the elderly, and taxpayers who speak limited English. Credit unions can help you find the right tax help for you.
Paying taxes is a fact of life. Procrastinating is never advisable, and by filing on time, you won’t have additional penalties. In the end, it is best to be prepared to file and pay your taxes in a timely and efficient manner!