5 Tips to Make Filing Your Taxes a Breeze This Year
While it is difficult to enjoy paying income tax, the principle is straightforward. Federal taxes pay for many services, like roads, schools, and National Parks. In fact, about half of federal revenue, or $1.688 trillion, comes from income taxes. Another third, or $1.238 trillion, comes from payroll taxes.
Most taxpayers have only three goals when filing their taxes — get it done as quickly, painlessly, and accurately as possible. Quick filing means that you get a quick refund. Painless filing means doing it with a minimum of effort. And accurate filing means that it is done with minimal risk of audit. However, this is often easier said than done. In 2017, the IRS conducted over 1 million audits. Here are five tips to make filing this year’s taxes a breeze:
When it comes to taxes, procrastination does not pay off. While preparing your taxes is not difficult, it does require some preparation.
The deadline for your employer and other payers to mail out W-2s and 1099s is the end of January. This means that you should be able to get started on your taxes around the first week of February. By starting early, you will also know if you are missing anything so you can request a replacement. Delay in replacing any missing forms could make the difference between filing on time and having to request an extension.
Filing early will reduce the chance that an error will incur interest penalties. Moreover, if you discover mistakes in your tax return, you may have the opportunity to file an amended tax return to correct the mistake and pay any shortfall before the U.S. Internal Revenue Service orders an audit.
Most importantly, filing early means that you will receive any tax refund sooner. Remember that a tax refund is a return of money that you rightfully earned and that the IRS was holding, interest-free. The sooner that it is refunded to you, the sooner you can put it to work for you.
You will also need to collect documentation for charitable donations, medical expenses, and other tax deductible payments. And remember that you need to keep these records for three years after you file your tax return. Once three years have passed, you should destroy these documents. Nearly half of consumers believe their security habits make them susceptible to identity theft or other forms of fraud.
Get up to Speed on New Tax Laws
While you do not need to become an expert in tax law, you should read up on any changes in tax law since the previous tax year. This will allow you to identify any changes that you will need to make in the way you file your taxes or categorize income and deductions.
You may want to review your prior year’s tax return. Most of the information on the return will still be usable. It will also refresh your memory about how you handled your income and deductions so you can treat them consistently on the current year’s tax return, besides any changes in the law. One of the possible triggers for audits is an inconsistent treatment of income and deductions from year to year.
Another possible audit trigger is failing to report income. Reviewing the prior year’s tax return will ensure that you list all of your income and deductions. It would not be unusual to forget to include sources of income like gambling, interest payments, and stock sales. Seeing the entry on the prior year’s tax returns will remind you to check these sources of income to determine if you have anything to report.
Use Tax Software or a Tax Preparer
Even if you stay up to date on tax law and have a reasonably good track record in filing your tax returns, you may still want to use tax software or a professional tax preparer. Professionals not only keep up with the IRS rules but also understand the tax rulings and the guidance used by IRS auditors.
A tax accountant, or software prepared in consultation with tax accountants, can identify ways to reduce the tax that you owe without increasing your risk of an audit. In fact, it would help for you to learn that a third of Americans overpay their federal income taxes by at least $500. By being aware of this statistic, you can do everything possible to avoid being a part of it. While everyone should pay their fair share of taxes, no taxpayer should overpay.
Double Check Your Math
It may seem elementary, but whether you use tax software, a tax preparer, or a pencil and calculator, double-check your math. Math errors are one of the top IRS audit triggers. Worse yet, they are easily avoidable. Almost all of the arithmetic on the tax forms are addition or subtraction until you have to multiply your adjusted gross income by your tax rate.
Double checking your math before filing your tax return will also give you the opportunity to spot any glaring errors. For example, you may be a stenographer and know that you should be making up to $60,000 or $70,000 in your first year, but see that this yearly income is too low (or high) on your tax return. Spotting these errors before the return is filed will allow you to double-check your tax filing against your W-2s, 1099s, and other tax documents to make sure the numbers were entered correctly. The IRS often orders audits for tax forms with numbers that do not match the numbers reported by your employer, bank, and other entities that paid income to you.
Filing your taxes can be a breeze if you plan ahead. Starting early will let you collect the documents you need and organize them. This will also give you time to get up to speed on any changes in the tax law and find tax software or a tax preparer to help with your taxes. And once your tax forms are filled out, you will have time to double-check your entries and your arithmetic. Remember, the sooner you file an accurate and complete tax form, the sooner you will receive your tax refund.