10 Tips and Tricks to Help You Navigate Tax Season
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Whether you look forward to the first few months of the year for a potential refund, or you dread every second of tax filing, we’re right there with you. This is, understandably, a stressful time of year for many individuals and small businesses – there’s a reason so many of us outsource our tax returns to professionals and firms. It’s always daunting to begin a tax return on your own, but it doesn’t have to be this way!
Save yourself the stress and heartache this year by going into 2019’s tax filing with confidence and direction. We have compiled ten tips and tricks to help you maximize this year’s return – all while setting yourself up for a smooth year of tax preparation so you don’t get behind. After all, the majority of tax-time stress comes from not having all of the information you need right in front of you as you sit down to put pen to paper!
1 – Don’t Not File!
Tempting as it might be, choosing not to file your taxes is one of the biggest financial losses you can undergo. Even if your income or tax statement doesn’t require that you file a return, you’re missing out on potential gains; don’t need the extra cash? Keep in mind, you could always turn your refund into an investment through CDs or improvements to your home.
Think of it this way: the time you spend filing your taxes will, in the end, be supported by an hourly rate. If it takes you two hours total, from start to finish, to send in your paperwork for a $2,000 tax return, you will have essentially worked for one thousand dollars per hour. When you think of it this way, it sounds pretty good, huh?
Worried About the Involvement?
There are so many programs and services out there that will help you through your tax return. You don’t even have to print out the standard documentation and mail it out anymore if you don’t want to. There’s no more sitting at a desk with whiteout and an old calculator – those days are gone. Some married couples can sit down at a computer and have the tax documentation on the way to the IRS in a matter of a couple of hours.
We’ve, unfortunately, held on to some of our older notions of how tax season is supposed to go; realistically, it doesn’t have to be that bad. Don your motivational cap and get cracking!
2 – Don’t Miss the Deadlines
This one might be a hair obvious, but it’s surprising the number of people who don’t get their returns filed in time for tax season. This can happen for a number of reasons, some of which may be beyond your control – such as health and mental wellness. Always remember to apply for an extension if you think there might be a chance you can’t complete your taxes on time.
April 15th of each year is the final date to submit your tax return; it is also the last date to pay any taxes you might owe for the tax year you are filing for. Generally speaking, you would pay your due taxes along with your return documentation. Remember to meet this date, because the penalties are drastic (5% of your due taxes for late filing and 0.5% for each month you have outstanding dues).
It’s incredibly important that you don’t have outstanding bills or taxes at any time, as this can have negative effects on your credit and your future borrowing potential. Stay informed, and stay in charge of your financial health.
3 – Keep Up-to-Date
This might be one of the most difficult things, but it will help you in the long run. As the year progresses, keep track of any changes or additions in tax credit laws; these are your lifeline for a great refund at the end of the year. If you’ll be using tax software for the year’s taxes, make sure the software is updated or that you purchase a new version at the beginning of the year.
Seeing as it’s already the new year and you’ll need to file soon, check out some websites that catalog the changes in tax reform over the past 12 months. This information will help you understand the differences you might see in your return over the previous years.
This year’s tax reform changes:
IRS provides tax inflation adjustments for tax year 2022 | Internal Revenue Service
Get ready for taxes: What’s new and what to consider when filing in 2022 | Internal Revenue Service
4 – Maximize Deductible Contributions
If you weren’t already aware, most additions to your standard and/or Roth IRA accounts and HSA accounts are deductible up until you file your taxes (or April 15th if you file on the deadline). This means that you should make any last-minute contributions to these accounts before filing your taxes.
It always pays to make contributions to your retirement or future health funds, but even more so when you can get a tax deduction for it! If you’re concerned about being in the red for this tax season, it could help to know that you still have time to score this deduction.
5 – Re-Evaluate Your Filing Status
Most tax programs will ask you what you would like to file as, and they’ll perform calculations in the background to make sure that this will give you the greatest refund or smallest amount due. If you are preparing your taxes on your own, make sure to calculate your end result in a different filing status; this will ensure you have explored all of your options to get the greatest outcome.
If you are married, you may want to have your spouse do the same with their return; combine the two outcomes and see if there is a difference when your spouse is included – you can’t both file differently. If one of you is filing separately, so must the other.
6 – Know Your Credits
Tax credits and deductibles are two different items on your return, and there are two types of tax credits: refundable and non-refundable. Non-refundable tax credits will not add to a return that is already refunding you money, while refundable credits will; keep an eye out for credits that are dual-type – some tax credits will have a portion that is refundable and a portion that is not.
Family Credits
If you have dependents under the age of 18 and they do not pay more than half of their living expenses, you can claim each one for a mostly-refundable credit. Children up to the age of 24 who are in higher education for at least 5 months of the year can also be claimed as dependents. You may also claim elderly parents and parents whom you care for, as long as you provide more than half of their living expenses.
Adoption Credit
If you adopted a child last year, you are eligible for a tax credit, as well. Adoption is a lengthy and expensive process, so this can be a great financial help to many families.
Higher Education
If you or your spouse were undergoing education (graduate or undergraduate) last year, you likely qualify for a tax credit related to higher education. Again, expenses for these institutions can be quite high, so these credits can be extremely helpful for both individuals and married couples.
Energy Efficiency
As part of an ongoing effort to bring greater self-sufficiency to the energy consumption of individual taxpayers, there may be a tax credit for the purchase of qualifying technology during the last tax year. Check with the manufacturer of your equipment to see if you are eligible and if they can provide you with proof of purchase.
7 – To Deduct or not to Deduct
This is the age-old question; honestly, standard deductions have risen so much in the past five years that it’s usually not necessary for most individuals to itemize their deductions. That’s not to say that you shouldn’t explore the possibility for your current situation; for example, you may wish to itemize if you make a great deal of charitable or religious donations, drive many miles for volunteer or charitable work, paid off outstanding mortgage or student loan interest… etc.
The only way to find out for sure what’s best for you is to run through the itemization, unfortunately. You can estimate this number with your biggest figures to see if you come close, then tally up the smaller deductions if it seems reasonable to do so. Do know, however, that if you choose to itemize you should be prepared with receipts and logs from the previous year to back your deduction claims.
8 – Double and Triple-Check
One of the biggest mistakes hard-copy filers make is misprinting numbers; while this seems like a harmless mistake, it can actually be quite costly. You are far more likely to be audited if your numbers seem unrealistic, whether it was intentional or not. In this case, an ounce of prevention really is worth a pound of cure.
Another thing to check for before sending out your return is that all parties have signed all locations properly. Double-check your social security number and date of birth for accuracy; any misprinted or unsigned information will delay the filing of your taxes and potentially cause timing issues.
If you’re filing a hard copy, also double-check your bank account information; there’s nothing worse than waiting for weeks for a refund check that is unable to be deposited properly. Take the extra time now to make sure your return goes through as smoothly as possible.
9 – Start Preparing for Next Tax Season
The best time to get ready for last year’s taxes was the beginning of last year! Set yourself up for success next spring by collecting all of your information into one location; plan to keep a “miles traveled” journal for itemization, and set aside receipts starting January 1st, this year. While it doesn’t take much each day to be prepared for tax season, it’s much more difficult to do three hundred and sixty-five days of retrospective work to organize yourself!
10 – Set Aside Extra for Double Payments
Planning ahead is one of the easiest ways to boost your tax refund for next year; for example, if you pre-pay your mortgage and student loan payments for this year, those can be deducted for the next tax year! In addition, any extra payment with interest (or IRA/HSA contribution) can go towards your deductions. Keep these things in mind as you move throughout this year.
At the end of the day, your best defense and offense for tax season is knowledge! Educate yourself and stay up-to-date on tax reform throughout the year so that you know how your tax refund will be impacted. After all, knowledge is power – and money, in some cases!