With tax filing season getting closer and closer, you might feel like you’re getting flooded in the details, especially if you’re doing your own taxes.
On top of all the info you need to collect and file properly, there are new rules you need to be mindful, too.
Even if you believe you’re on top of your taxes, it’s always an important idea to analyze the essentials and keep informed with the latest revisions.
Read through for 15 practical tips to keep in mind when filing your taxes this year.
1. Review Your Last Year’s Return
Get your federal and state tax returns from previous year. It will help you get started on this year tax return. Use the information from your previous return to start gathering the documents for this year’s return.
You might find yourself in the middle of a few important life events that happened last year. Did you get married? Did you have a child? Did you change jobs? Those a few things to keep in mind, but your previous return it’s a great start.
2. Gather Your Documents
Don’t be overwhelmed with the starting process of preparing your tax return. After glancing through your tax return from previous year, start gathering the necessary documents that apply for this year. Let’s break it down the type of documents in 3 sections: income, adjustments to income, and deductions.
On the income side, some of the documents you might need are: W-2 Form (Wages from your employers); 1099-INT (interest from your bank accounts); 1099-DIV and 1099-B (dividends from your investments and investment sales); 1099-MISC (independent contractor work); K-1s (your share of income from a partnership or S-Corp).
Next, if you had any adjustments to income, you might have a 1098-E (student loan interest); 5498 (IRA contributions); 5498-SA (HSA/MSA contributions).
Finally, if you itemize your deductions or receive tax credits, you might need forms such as: 1098 (mortgage interest); 1099-SA (HAS/MSA distribution); 1095-A (insurance marketplace statement); 1095-B (Health coverage); 1095-C (employer-provided insurance coverage). If you had any charitable contributions, unreimbursed employer business expenses, medical expenses, and moving expenses, gather up these receipts and keep them in a safe place.
3. Know Which Deductions to Take
Continuing the topic of deductions, it is fairly simple to know if you’re going to itemize it or take the standard deduction. You’re going to use whichever is higher. Most likely you’re going to use the standard deduction.
If you not sure what you can itemize it or not, check the IRS website for more details on Schedule A. Here is a link.
4. Your Political Donations Don’t Count
Whichever candidate you help last year by giving money to his or her campaign, it doesn’t count as a charitable contribution. The same rule applies for political parties or groups. They are all part of “non-qualified organizations,” which means you can’t deduct the amount of your donations.[convertkit]
5. Check Your Volunteer Driving expenses
You can’t deduct the value of your time spent helping others, but if you volunteered to a charitable organization, you might be entitled to deduct the cost of driving if you itemize your deductions. Before you get excited with the 14 cents per mile and tolls and parking that you can deduct while driving for charitable events, make sure you keep good records of your mileage for this travel. Writing in a piece of paper things like date, hour, beginning mileage, and ending mileage of your car are good practices to support these deductions.
6. Make Sure You Have Health Insurance Coverage
Obamacare or Affordable Care Act made a requirement for all of us to have medical care coverage that the entire year. You must have qualifying health insurance coverage for each month of the year, or qualify for a few exemptions from the coverage requirement so you don’t pay a penalty. Guess what? The penalty should cost you closer to the price of the cheapest plan available for you through the marketplace. Use the information from your 1095 Form to complete this section of your return.
7. Business Auto Expenses
If you use your car for business purpose, its costs might be deductible. You either choose between the standard mileage rate of 54 cents per mile plus business tolls and parking or partial actual expenses costs. The easiest method is the standard mileage rate, but if you want to really maximize your deductions, you can take the time and calculate all your auto expenses for the year like gas, repairs, and fees, and allocate the percentage of business used of your car. If you drove 40% of your car for business trips, you can only deduction 40% of your auto expenses. Remember to have good records just like for your volunteer driving expense.
8. Remember Your State Income Taxes
Only 7 states don’t require you to file a separate tax return. If you live in Alaska, Florida, Nevada, South Dakota, Texas, Washington, or Wyoming, you don’t have to file a separate state income tax return.
9. Don’t Make Simple Mistakes
Whether you prepare the tax return yourself or not, always double or triple-check the inputs. It’s the old saying: “Garbage in, garbage out.”
Making an input error might mean you are paying too much or getting back too much. Either one of these situations can be a costly mistake after interest and penalties imposed for not inputting the correct numbers.
After you go through the numbers once, take a break, step back for a moment and look at the numbers one more time. “Does anything look weird to you?”
If you have the opportunity, ask someone else to look through the numbers and check if you guys get the same results. If you’re not completely sure, hire a qualified tax prepare – a.k.a a CPA.
10. Don’t Fall for Tax Scams
Nowadays, there are multiple crooked people out there pretending they are the IRS demanding that you pay taxes you owe or to confirm a few extra information on your return.
The IRS will never call you without first having mailed you a bill.
Don’t pay anything if the person on the other side of the phone didn’t give you a chance to appeal or question the amount you owe.
The IRS will never request you to use a specific payment method.
The IRS will never threaten to bring in local police to have you arrested for not paying.
And please, don’t ever give your credit or debit card numbers over the phone
11. Report All Your Income
Be honest and report all your income. It doesn’t matter if a 1099 was issued to you or not. If you earned money for cash on the side, it’s all taxable income. This includes tips you might receive as part of your job.
12. File Your Return Electronically
Whether because you get your refund much quicker or because you have less chances of a mistake, when it comes to filing time, file it electronically. There are tons of software out there that would do that for you, even free sometimes, or hire a CPA to do that for you. Also, a lot of people use TurboTax.
13. Know The Deadline to File
Usually, your personal income tax return must be postmarked on April 15th. Partnership and S Corporations informational tax return are due on March 15th.
Since you are reading this article, I bet you won’t wait until the end, right? Don’t procrastinate.
If you elect for an extension, always remember that you are electing a choice of filing your tax return in a later date, you’re not extending the payment of taxes you owe. If you don’t pay the entire amount you owe, you will get penalized and interest charged.
14. Use Contribution Limits For Best Tax Planning
Health savings accounts let people with high-deductible health plans set money aside on a pretax basis to cover the costs of their health care. For this tax year, you have the benefit to contribute until April 15. The contribution limit for individual policies are at $3,350 right now, but the maximum contribution for family policies are at $6,750.
Contributions limits for Individual Retirement Accounts or IRAs have some income restrictions ($132,000 for single and $194,000 for married filing jointly). So, if you’re qualified to contribute the maximum, please do. It’s $5,500 for either Roth or Traditional IRA. Here is a link for the IRS website.
15. Get ready for Next Year Taxes
The best advice I can give you is to keep your finances organized. I personally use Quicken for more than 5 years now. I set up my bank accounts and credit card accounts transaction to be pulled directly from the internet so I don’t have to spend time entering information so that I can focus on decision making.
Also, it helps me create a budget and follow along with a mobile app. It’s awesome to say the least.
So, what about you? What are the things you are doing to get ready for this coming filing season?