It’s tax season and how you file can save money and reduce the risk of owing the government. Check out the great tax tips from our guest writer Ronald Fitzgerald, CEO and Founder of Finance 101.
Anyone who has filed taxes a few times can tell you that it can be either simple or a lengthy, elaborate process. Tax returns differ yearly based on changes in location, job, or events in your life and business. Keeping detailed records of everything pertaining to your tax return is both vital and paramount to making this process as easy as possible. Here are a few other tips to help.
1) Getting Assistance – Tax preparation services are available for both complex and simple returns alike, however many simple returns can take advantage of a plethora of free filing options. For starters, the IRS offers programs to those with incomes less than $52,000 or who are over the age 60. Also check out local resources for tax preparation services in your community. Many of these services offer advice and tax planning completely free of charge to those who qualify. This is also a great time to discuss your current situation and ways to be proactive in reducing your tax load in the future.
2) Income and Adjustments – Essential to having a complete return is having an accurate adjusted gross income or AGI. If you are paying interest on a student loan or have moved recently for example, you may be able to make adjustments to your total income received, ultimately lowering the amount of income you will be taxed on. Equally as important, if you are eligible for tax credits and deductions, your AGI will likely reference this amount to determine eligibility. For instance, you may have child care expenses and be eligible to claim a $6000 credit, however if you earned more than $75,000 that amount begins to phaseout as your income increases.
And keep in mind with the Affordable Care Act or Obamacare, for any period of time you or your dependents are without health insurance during the year, you will paying a shared responsibility payment. This payment will also be calculated based on your AGI.
3) What About Itemizing? – Everyone receives the standard deduction, however if your totaled itemized deductions amount to more than you probably should opt to itemize instead. The IRS even encourages you to do so.
This is a common process for homeowners, who often have higher interest payments and taxes to itemize, however, everyone should consider the option. People often leave money on the table by not claiming all deductible items suitable to their situation, omitting varied expenses from charitable deductions and job search costs, to points paid for mortgage loans.
4) Last Minute Decisions – It is not uncommon for some high income earners or business professionals to face a heavy tax burden at the end of the year. Until April 15th, you can make some last minute contributions to certain retirement accounts to help lower your taxes due. You also have some time to make another estimate tax payment and start for the new year.
When you still need more time to file, don’t worry! File Form 4868 with the IRS to get a free automatic filing extension of 6 months. Take note that if you miss your filing deadline and do not obtain an extension, there will be late fees and penalties starting right after tax season ends.
5) Prior Years & Amended Returns – There are new credits and deductions released yearly by the IRS and State. These also include some for Small Business. It’s nearly impossible to catch everything and keep up with all the revisions, however generally you have 3 years to make changes to your prior tax returns. This gives you the opportunity to fix errors and claim any missed tax dollars.
Ronald Fitzgerald offers accounting, business services and real estate solutions through Finance 101. You can learn more about the services at facebook/101finance. He can be reached firstname.lastname@example.org.