10 tips you must read before filing your taxes
Mar 22nd 2010 10:00AM
Updated Mar 22nd 2010 1:48AM
1. Tax professional or DIY? Before you get started, you'll need to figure out whether to use a tax professional or try your own hand at doing your taxes. A competent tax professional will save you time and agitation, but likely cost more money upfront; keep in mind, however, that a tax professional may be able to maximize credits and deductions you didn't know about, which may prove to be more cost effective in the long run. If you opt to do it yourself, you'll save more money upfront but the preparation will likely cost you more in time, especially if you itemize or have a small business. A good beginning question to ask yourself is: What's more valuable to me, my money or my time?
2. Get organized. Some taxpayers have everything already organized come tax time -- and good for them. But if you're not one of them, now is the time to put your finances in order. Grab your checkbook, receipts, credit card statements and bank statements and start making lists of payments that might be deductible (of course, if you reconcile your statements each month using a program like Quicken or Quickbooks, you can simply refer to the reports generated from those programs) or income that might be included on your return but was not reported to you on a form W-2 or 1099 (like freelance income). Make sure you have all your forms W-2 and 1099 -- if you're missing any, take steps to get them. If you're need a tax prep checklist, you can download one here.
3. Make some key decisions. Most taxpayers file the same way each year. But life events happen. People get married, divorced, graduate from college, have children, take in their elderly parents to care for them ... don't assume you'll file the same way from year to year if your situation has changed. Consider any changes in filing status and exemptions before you file your return.
4. Consider itemizing your deductions. Traditionally, taxpayers assumed that they must be homeowners in order to itemize; this isn't always true. A number of deductions are available to taxpayers outside of the home mortgage interest deduction. Familiarize yourself with what qualifies as a deduction, and see if it makes financial sense to itemize.
5. Don't leave money on the table. Once you've run the numbers on your return, run them again to make sure you didn't leave anything out. You may qualify for deductions that don't require itemization or common tax credits. Commonly overlooked credits include the EITC (earned income tax credit), which may be available even if you don't owe taxes.
6. Keep up to date. The Tax Code changes every year -- and usually, the changes result in more money back for taxpayers. Make sure that you're aware of changes for the 2009 tax year -- big ticket credits like the Making Work Pay Credit and the First Time Homebuyer's Credit can put more money back in your pocket.
7. File on time -- or get an extension. The IRS imposes a penalty on taxpayers who file their tax returns late, so try to file on time even if you don't believe you can pay. To be considered timely filed, paper returns must be postmarked by the end of the day on April 15, 2010. You can also use certain private delivery services designated by the IRS to meet the "timely mailing as timely filing/paying" rule for tax returns and payments. These private delivery services only include: DHL Express: DHL Same Day Service; Federal Express: FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First; and UPS: UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express. Each private delivery service can tell you how to get written proof of the mailing date.
If you file online, the return is not considered filed until the IRS acknowledges acceptance of the electronic portion of the tax return for processing; allow an extra day or two before the filing deadline to make sure your return is accepted. If you need more time, don't be afraid to file for an extension.
8. Decide how to get your refund -- or pay. You have a number of options for getting your refund back, so be educated. Refund anticipation loans can be costly, whereas you can often get your refund back from the IRS via direct deposit in as few as 10 days, at no charge. If you owe, you can pay by check, direct debit or credit card. If you find that you can't pay, you can make arrangements to pay over time, if necessary (check back with WalletPop for an upcoming post on this subject).
9. Plan for next year. A good tax professional or tax software package will offer you the opportunity to do some tax planning for 2010 -- don't overlook this valuable tool. With just a few minutes of your time, you can avoid some potential headaches next year. Run the numbers and see if you need to make any adjustments. If you received a large refund, consider tweaking your form W-4 so you get more money back during the year in your paycheck instead of all at once. If you owed a lot of tax, consider making estimated payments in 2010 so you don't owe a big chunk of money next year, as well as penalties.
10. Don't be afraid to ask for help. Asking for help isn't a sign that you don't know what you're doing -- it's a sign that you're smart enough to know when something is over your head. Free tax assistance is available for a number of taxpayers who qualify. Additionally, free tax advice is available to all taxpayers regardless of age, income or occupation; simply call the IRS at 1-800-829-1040 or visit the IRS Web site at www.irs.gov. Content is also available in Spanish by clicking the "Español" tab on the site. If you find yourself absolutely stuck, consider hiring a tax professional (see #1).