7 Hot Tax Tips
One in an occasional series of articles about your taxes.
As you prepare your taxes this year and submit for filing, there are several things you should review to ensure that your taxes are filed correctly. Mistakes can hurt you, even delay your return. A pattern of mistakes could also trigger an IRS audit, creating inconvenience and upset for taxpayers.
1. Know your filing status — If you’re single, you can’t declare on your tax forms and returns that you are married nor can you claim someone as a dependent who isn’t. Unfortunately, tax forms including W-4 forms are sometimes incorrect. These forms should reflect your tax status as of December 31 and should be reviewed by you annually. Your marital status may have changed as might the number of dependents you have.
2. Keep your receipts — Receipts are important and should be kept on hand, offering proof of purchases made or donations given. If donating to a charity, you’ll want to get a receipt from that organization showing the items you donated. You may be able to value these gifts yourself too.
3. Use tax prep software — On Monday, we mentioned a number of tax preparation software programs available for you including TurboTax, TaxACT, Tax Cut and Tax Works. Such programs are inexpensive and can be ordered online and downloaded to your computer. Unless you’re using the services of a tax prep professional, these programs are an excellent alternative and can save you money.
4. Expense it sooner. — If you fear that your tax burden will rise, you can reduce what you owe the IRS by moving some of your January purchases to December. For example, if you own a small business and have a website renewal or major office purchase scheduled for January, make the purchase by Dec. 31 to write these items off ahead of time. You’ll still get what you need, but you’ll owe the IRS less as your expenses for the year are increased.
5. Take a loss — Stocks or bonds that are performing poorly may not be worth holding onto. If you anticipate that you’ll lose money on the sale of such investments, take the loss and show it on your income taxes. That loss will reduce your tax burden. You can reduce it further by donating your investments to an eligible charity.
6. Fund your retirement plan — If you have a retirement plan, the funds you contribute are generally not taxable until you begin to make withdrawals. See your financial advisor to discuss options that are available to you. Prepare for the future and keep your money out of the hands of the federal government.
7. File on time and obtain an extension — Failing to file on time can lead to serious consequences. If for some reason you can’t finish your taxes by April 15, request an automatic 6-month extension to October 15. Whatever money you owe the IRS still has to be paid by April 15, but the later filing deadline can buy you some much needed time as you finish gathering your documents.
Tax time can be nerve wracking for many taxpayers. If you’re having difficulty with your return, then seek professional help. The IRS offers free tax help too to those who need it.