Financial responsibility is usually optional. If you don’t want to track your spending or follow a budget, no one will say a word. If you don’t want to save for your goals or contribute to a retirement account, that’s entirely up to you. If you want to spend your emergency fund on last-minute plane tickets to Aruba, no one else even has to know.
Filing your taxes, on the other hand, is a different matter entirely.
You may be able to get away with ignoring the tax man for a little while, but the IRS will always catch up to you eventually. You’ll be much better off developing a solid tax preparation strategy that you can rely on every year. The more you learn about the tax system and how to navigate it, the easier each tax season will become.
As you start filing for 2018, here are some tips and considerations to help simplify the process.
Research Tax Software
Until I graduated college, my mom did my taxes for me. She’s a Certified Public Accountant (CPA), has almost 20 years of experience and specialized in tax law during college. Plus, her services are free (for me).
But after graduation, she pushed me out of the nest and encouraged me to tackle tax season on my own. “Do what I do,” she said. “Just use TurboTax.”
TurboTax is one of the leading tax software products, developed for everyday people to file their own taxes without hiring an accountant or going to a brick and mortar tax prep company. TurboTax is also incredibly affordable and easy-to-use. Once I started using it to file my own taxes, I immediately regretted relying on my mom for so long.
Tax software like TurboTax makes filing your taxes simple. The program asks questions to determine what your eligible deductions are. Also, if you have additional questions while filing, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent with an average of 15 years’ experience. There are multiple types of TurboTax levels available, from the most basic edition to the most complicated.
You can even file electronically for state and federal returns through TurboTax, which means you’ll get your refund faster.
Tax Laws Have Changed
The tax law is an ever-changing document, and consumers will see that firsthand when filing their 2018 taxes. This year, some people will see bigger refunds and others will owe money for the first time ever.
Some of the most notable changes are; the $10,000 state and local taxes cap for itemized deductions, elimination of the personal exemption deduction, increase in the standard deduction and decrease in the tax rates.
These changes could have a significant impact on your tax bill or almost none, but it’s best to be prepared for some big differences. If you end up owing much more than expected, call and ask the IRS to set up a payment plan.
Learn about Extensions
Though they have a scary reputation, the IRS is more forgiving than you might realize. If you’re having problems filing your taxes on time request an extension, otherwise known as form 4868, by tax day. When you file a tax extension, you’ll get six extra months to file your taxes and extend your filing date to October 15th.
It’s important to remember that an extension doesn’t affect when you need to pay your tax bill if you owe money to the IRS. You still have to pay your taxes by April 15 (*due to COVID-19, the 2020 tax date has been pushed back to July 15th, 2020), even if you file and send your return later.
If you end up owing money and don’t pay it by April, you’ll incur late fees and interest. If you’re due a refund, the extension will just delay the delivery of your money.
Claim Every Deduction
When you file taxes, you have to declare all the income you earned for the year. The government will then determine how much you owe on that income. You can claim deductions to decrease your taxable income and lower the total amount owed.
Unfortunately, the government doesn’t record what deductions you’re owed. It doesn’t know if you paid $1,000 for unreimbursed employment expenses or $5,000 in student loan interest. It’s entirely on you to make those considerations known.
The best way to reduce your tax burden is to go through all the possible deductions you might be eligible for. If you’re using software like TurboTax, it will ask helpful questions to determine all the deductions and credits you qualify for. If you hire an accountant, they will also ensure you’re declaring all the deductions you can.
To correctly claim those deductions, you need to have all the relevant paperwork. If you’re claiming a deduction for medical bills, you need to have proof of how much you paid out-of-pocket. You may also receive official tax documents, such as 1099s, that you should report on your taxes.
Keep a Copy of Your Taxes
After you’re done filing, it’s tempting to put your feet up and shred all those paper documents and forms. But storing your taxes correctly is key to preventing future problems down the road.
Legally, the IRS has several years to audit your returns. If you threw away all supporting information, you’ll have a harder time proving your side of the story. Keep your tax records for three to seven years, or longer if you have a complicated tax situation.
The best place to store them is on the cloud, through a service like Dropbox or Google Drive. You can also back them up on a physical hard drive, preferably stored at a second location like your workplace or a relative’s house. This will prevent the loss of important information in the event of a fire or natural disaster.
Physical copies are never ideal because paper can fade, especially on receipts. Use a scanner or an app like Scannable to convert your paper forms into PDFs. Label and organize those digital files clearly, especially you have dozens of different forms. A little work now might save you a lot of work later on.