April 15 is a dreadful day for many people. Known as tax day, this is the date every year when federal income taxes must be filed. The forms and paperwork you need to fill out can be daunting, with tax rules and the number of deductions available changing every year. The process can be especially cumbersome if you are self-employed or claiming many deductions. However, with a bit of organization and help from a tax preparation service, you can make filing taxes a breeze. In fact, it can even be an exciting time if you plan on getting a refund.
Basics For a Successful Tax Season
It should be noted that filing taxes will take a bit of time. You will need all the necessary documents, such as W-2s, and if you’re self-employed, all bank statements, receipts and invoices. Tax forms are generally not available until the end of the year. You will typically receive everything you need by the end of January, but you can file as early as January 1. You are encouraged to file as soon as you can, especially if you are expecting a refund. However, sometimes there are tax filing updates that may delay the filing of your return. The IRS website (irs.gov) is good at posting updates as they occur.
It can be confusing to fill out the forms by hand, so it’s preferred that you get the help from a reputable tax preparer (such as Jackson Hewitt or H&R Block) or invest in tax preparation software such as TurboTax. These will save you time as well as increase your deductions. Plus, tax deductions and amounts change every year, so it’s easier to have the software do the work for you than to have to keep track of everything and make calculations manually. Using a tax preparation service will result in more money back to you, which is always a nice surprise.
If you are claiming deductions, you will need even more paperwork. For those with children in daycare, you should receive a statement from your daycare provider showing the amount paid for the year. If you paid interest on your home mortgage or student loans during the year, you should receive a statement from the lender at the end of the year. You can also claim any charitable contributions. You may also be able to claim medical expenses, such as co-pays, prescriptions and insurance premiums. Don’t forget medical appliances, such as hearing aids or eyeglasses. If you are a nursing mother, you can even claim breastfeeding supplies, such as breast pumps. The software or tax preparer will guide you through each of the categories in which you can claim deductions, so it pays to spend the extra time to go through each step thoroughly.
Advantage of a Tax Professional
One of the advantages of investing in a tax preparer or tax preparation software is that they can help you find many deductions that you may normally overlook. For example, if you move more than 50 miles away for a new job, you can claim moving expenses, such as packing, transportation, shipping of pets, travel and storage costs. If you pay alimony to an ex-spouse or cash in a certificate of deposit (CD) before it matures and pay penalty fees, these expenses can be deducted as well. If you bought a new car in the last year, you may also be able to claim a portion of the sales tax. If you spend money on job searches, such as transportation, recruiting or resume preparation fees, you can claim these expenses, but only if they exceed 2 percent of your adjusted gross income. If you’re a high roller, you can also claim any gambling losses, but only if they are less than your winnings. Also this may not seem significant, it can help bring down your overall tax liability if you’re a frequent gambler. Other deductions you can claim include adoption expenses, disaster losses and home energy improvements.
More Deductions If Self-Employed
If you are self-employed, there are even more deductions you can claim. Office leases, equipment, payroll, transportation, advertising, insurance and liability are all examples. As you can see, there are more tax breaks out there than you think. A good way to keep track of these is through spreadsheet software, such as Excel or QuickBooks. It’s much easier to continually track expenses throughout the year than to have to figure everything out at the end of the year.
Once your tax return is complete, double-check for errors. If the IRS finds any issues, you may become audited. This will delay the process, which means it will take longer to receive any refund you are entitled to. When your tax return is ready to file, you have two main methods to choose from: you can mail in your tax return and wait 6-8 weeks for a refund or file electronically for a fee (typically $19.95) and receive your refund in less than two weeks. Whichever method you choose, sign up for direct deposit for fastest results.
File For Extension
If you owe money and cannot pay your amount by April 15, you can often request an extension until October. However, you may need to pay fees and penalties. If you are having trouble paying your taxes, contact the IRS and set up an installment plan. It’s better to do this sooner than later.
If you end up receiving a huge tax refund, you may be ecstatic. However, this typically means that you might need to adjust your W-4 to withhold fewer taxes from your paycheck. This means more money for you during the year instead of waiting until the end of the year to get it back. If you end up owing the IRS money, start planning for the next year. Think of ways to maximize your deductions to reduce your tax liability. For example, you can donate more money to charity or pay more money on your home or student loans to claim more interest.You can adjust your W-4 to take more money out of your paycheck during the year to avoid a high amount of liability at the end of the year.