It’s the end of February and tax time is just around the corner. By now you’ve probably received your W-2 or 1099 and for all you kids out there that have never had this happen before, thinking of filing taxes can be a daunting task. So there are a few things you should know about getting all this done and avoiding as much pain as possible. Don’t worry, you can thank me later.
Filing on time is absolutely critical. Even if you’re scared that you won’t be able to pay all the taxes you owe, keep in mind that failing to file is much worse (in terms of recurring monthly penalties) than failing to pay. Even if you file for an extension, unfortunately, that isn’t an extension on paying. You’re still going to be responsible for paying your taxes on time. If you can come up with 90% of the taxes due, you can follow that up with the remaining amount at the time for your extension filing and avoid any penalties on that front. Most people are pretty scared of the IRS, but if you keep in contact with them they will work out payment plans with you so check the site for more information.
Filing electronically will save a lot of time. As the tax deadline approaches you’ll find yourself waiting in more and more lines if you’re wanting USPS’ certified mail services. If you’re pinching pennies, there are options for filing your Federal return and state return for free offered by your state government (e.g. California) and the IRS. Turbo Tax is also a very viable option. Turbo Tax is a platform that is tried and true. It automates a lot of the busy work of going through your banking information, W2’s, 1099, etc. However, Turbo Tax charges you depending on your individual tax situation and state returns are not free.
Direct deposits are your friend. If this is your first time, you may or may not know that you can have the IRS direct deposit your tax refund into your checking account. There are a few reasons why you want to do this. First, you don’t have to wait for a check. Second, it won’t get “lost”. Third, some of y’all have several accounts you would like to deposit that tasty refund into. Unbunch your panties and calm down, you can choose up to 3 different accounts to allocate the funds to. If you knew all this and you still ask the IRS for a paper check, don’t complain when your refund is late. You have no one to blame but yourself.
Planning for retirement early will reduce your taxes. For the 2013 tax year, individuals are allowed to contribute up to $5,500 to reduce their taxable income provided your adjusted gross income (or AGI) is $59,000 or less for singles, or $95,000 or less for married couples filing jointly. The amount of money you’ll save varies, but depending on your individual tax situation, this could be significant.
Seek professional help to save yourself a headache.If you have a single source of income and no deductions to speak of, you will be filing the 1040EZ form. Aside from the EZ form, there is the 1040A (a.k.a. the short form) and the 1040 (a.k.a. the long form). The requirements for each form are pretty straight forward and can be found through a simple Google search (or just click here for About.com’s summary). If you fall into long form territory and find yourself on unfamiliar ground, you may benefit from enlisting a Certified Public Accountant’s (CPA) help. Most firms will charge a flat rate (as opposed to an hourly rate) to individuals based on your general tax situation, but expect to pay anywhere between $50 to $250 (I live in Los Angeles, this may not reflect pricing in other areas). The added bonus is that they may be able to identify additional ways to offset some of your tax liability through deductions and incentives you may not know about.