Start 2016 out in the right direction for a better outcome at tax time next year. Here are a few quick tips gleaned from an article written by Amy Haimerl in the USAA magazine’s winter 2015 issue.
1 Failing to file at all is not a good option. This can cost you money – the IRS says the average unclaimed refund is more than $600 – or large penalties and/or interest charges.
2 Always check your math if you are paper self-filing. Numbers that don’t add up may trigger red flags. E-filing makes math errors and transpositions more difficult to do.
3 Not filing an extension – If you owe taxes, you still need to make a reasonable estimated payment of what you think you owe in taxes when filing for an extension by April 15th. You must pay, to the best of your ability, what you owe to avoid receiving additional penalties then follow up with a final tax filing.
4 Get started now – waiting until after the holidays might be too late to take advantage of some tax deductions and strategies. Selling investments or making charitable gifts must be done in the calendar year. Retirees with low enough income might be able to take a voluntary distribution from their retirement savings without incurring taxes.
5 Itemize for greatest benefit – when filing you can either use the standard deduction or itemize your expenses. If you are record keeping challenged, the trash can might be your go-to method. Keeping accurate records throughout the year in clearly marked files can be a great advantage come tax time. The little extra time it takes to file those receipts could mean a good sized refund at the end of the year. TurboTax’s ItsDeductible app lets you track charitable contributions as you give if you are tech savvy.
6 Not asking for help – when making life changing decisions it is wise to discuss it with a financial advisor or a tax preparer. Selling properties, considering moving into assisted living or perhaps you’ve started caring for a relative in your home; these are all situations where it is prudent to ask for advice well before tax time. Military members and families qualify for free tax help. To find free help look at irs.treasury.gov/freetaxprep
7 Not keeping up with good records – Credit card statements are not enough. An acceptable receipt must show what you purchased, not just where you purchased it. Save your receipts even in a small file box. You never know what could be useful when it comes to health care items and taxes. The IRS does accept scanned receipts so if you are tech savvy, snap away!
8 Passing up tax breaks – According to the IRS, 20% of eligible taxpayers don’t claim the Earned Income Tax Credit. The old adage of “you don’t know, what you don’t know”. Even if you don’t use a tax professional every year, using a trained professional when you have life changes or even every few years at the very least can help you to avoid costly mistakes.
9 Ignoring the results – If you got a big refund last year or had to write a big check, that should be a red flag to check your withholdings or start making estimated payments. Again, getting a “tune-up” from a tax professional can have great results besides creating peace of mind.
MSRN Member Cindy Stevens, Personal Financial Solutions, shared the above article.