Again it’s that time of the year which most of us don’t like – tax preparation time. However, everyone of us have to go through this regardless of whether or not we like it. What I feel it’s not about how much money you have to give out, but most of us find the process to be stressful.
So, I thought of sharing some tips for smooth tax filing process. I think it can make your job much easier, especially, if this is your nightmare. These tips can help you whether you file it yourself or take help of a tax professional.
Do not keep it for the last minute
I have noticed that it’s a common habit to defer tax filing process until the deadline. But, doing so, you might miss out a potential deduction or a source of income. In short, there are chances you’ll commit an error. So, it’s better to start it on time. It’s already late if you’ve not started the process yet, as we’ve stepped into March. So, do not delay any more.
Avoid last minute frantic searches
You actually experience this when you do last minute filing. You need to frantically search for the tax-related statements, which is not advisable. I have also seen that some people start with the process, but not take into account whether or not they have every document with them. So, start early and at first, make a checklist of all documents you need. By doing so, you can gather the documents which you need but don’t have with you.
Decide what filing status will be most suitable
You need to decide your filing status so that you can organize the documents accordingly. For example, most married couples prefer filing jointly. However, you may not get your expected refund by filing jointly. In some situations, filing separately can yield better returns.
Organize your tax records properly
Organize your tax records to reduce your tax stress. You can follow these steps to organize them properly:
- Separate records in 3 groups – Collect all your tax records and separate them in 3 groups – Income, Expenses and Deductions, and Investments.
- Document gifts properly – Only having the letter of thanks for your gift won’t do; you require proper letter of substantiation of the gift, which you need to produce.
- Make copies and secure them – Always make at least one copy of all your original documents and secure them in a safe place. You can keep them in a safe deposit box which is fireproof or take an electronic back up in your computer. You can also keep an electronic copy in a hard drive that’s encrypted. Also, keep your security software up to date.
- Keep documents for at least 3 previous years – The state and IRS can examine your income tax return for past 3 years. Therefore, keep documents of past 3 years. However, keep valuable documents (such as, legal documents, retirement and pension records, tax returns, etc.) permanently. It is advisable to use a paper shredder, for documents you don’t need anymore, to avoid theft of your personal information.
Don’t overlook deductions which you’re eligible for
Finally, what everyone of you will be interested – Deductions. Make a note of all deductions you are eligible for. Here are some deductions which you shouldn’t miss out:
- Medical expenses more than 7.5% of your adjusted income
- Donations given to IRS approved charity
- Unreimbursed cost of job searching
- Cost involved in moving, more than 50 miles, for job purposes and not reimbursed by employer
Make a note of eligible tax credits
Check out whether or not you’re eligible for these tax credits:
- Child care credit
- Earned income tax credit
- Lifetime learning credit
- American Opportunity Tax Credit
Opt for filing tax for free
You can file your federal taxes for free. If your income is less than $60,000, then you can use free file software available online. If your income is more than $60,000, then also you can use free fillable electronic forms to file your tax.
Pay pre-tax contribution to IRA if required
While calculating, if you find that you still owe some amount to the IRS, then you can make a pre-tax contribution to a traditional IRA before April 15. You can contribute up to $5,500. You can pay up to $6,500 if you’re above 50 years. You can also set up an account if you don’t have one.
Don’t panic if you can’t make required payment
You can file for an extension in order to push your tax filing deadline for six months. However, you still have to pay the amount you owe, with Form 4868. Doing so, your extension for filing tax will be granted automatically.