Tips to Make Tax Time Less Painful
Tax time can be painful--whether you prepare your own taxes or have them prepared by someone else. However, you can take some practical steps and practice habits that can help alleviate the pain.
If you dread receiving your tax statements each year, then follow these tips:
Become Organized
Becoming organized is the best way to prevent trauma during tax time. You can institute many systems to become organized, depending on your personality. Here are a few suggestions:
Save all your receipts. Keep your receipts in one place, which can be a shoebox, a binder, or a file cabinet. When you purchase something or pay a bill that is deductible, immediately put the receipt in the designated place. Find a handy location for your storage unit, so it is easy to see and remember to use it regularly.
Categorize your receipts for efficiency. Put all your charitable contributions in one folder or envelope, and do the same for all of your deductions, like medical bills and property tax bills. If you use this process, you will not have to separate receipts by subject during tax season.
Log your expenses. Use an inexpensive sectional notebook or your computer in a spreadsheet or Word document. Allow a few pages for each type of deduction. For example, when you pay your property tax, jot down the date and payment amount on a page headed “Property Tax.” Your amounts will be ready to total as you start to work on your taxes.
Keep Track of What’s New in the Tax Code
The Internal Revenue Service (IRS) has a very good website (www.irs.gov) that offers excellent guidance and is packed with information on the United States tax code. The site also presents anything new in the tax code. Periodically check this website to find out the latest tax cuts, deductions, and incentives.
If you know in advance what the new laws are, you can take advantage of them. For instance, if there is a tax credit on the purchase of new energy efficient appliances, and you need a new refrigerator and stove, knowledge of this tax incentive can help you make an informed and beneficial decision.
Start Your Tax Preparation Early
Do not wait until the last minute. Procrastination is one of the greatest causes of pain around tax time; the pressure is on to file, and you may have waited too long to start. You will begin to receive your statements and forms in January, so you can be up to speed right after the first of the year to get going.
If you use an accountant or tax professional, set up an appointment during the off-season to discuss your situation. Professionals are usually too busy to see you for an in-depth consultation between January and April, unless they are helping you with your tax return.
Understand That Changes in Your Personal Life Will Affect Your Tax Status
Are you selling or buying a home, getting a divorce, getting married, going to college, saving for your child’s college fund, or have you become unemployed? Changes in your personal life may have an impact on your taxes.
Selling your home? Learn about capital gains tax before you list your house. See IRS Publication 523 (www.irs.gov/publications/p523/index.html) to learn more.
Buying a home? Tax incentives are sometimes available for first-time home buyers and for taxpayers buying investment properties.
Getting divorced or married? If your last name has changed due to these circumstances, make sure you apply for a new Social Security card. The IRS knows you by your Social Security number and name. If the two do not match on your tax form, there will be a delay in processing your tax forms.
Going to or saving for college? The Hope credit and the Lifetime Learning Credit can help parents and students pay for post-secondary education. Taxpayers can usually claim some of their own tuition and those of their dependents’ college education.
Losing your job? Should you have taxes taken out of your unemployment check now or later? See IRS Tax Topic 418 (www.irs.gov/taxtopics/tc418.html) to learn how the IRS views unemployment benefits.
IRS forms and publications. Tax forms and publications are available on the IRS website (www.irs.gov/formspubs/), and you can download these documents at any time. They change periodically, so be sure to stay on top of changes and new information. Most documents are dated, so you will know if you have the most up-to-date information.
