7 Tips to Make Filing Your Taxes Less... Taxing
Victoria SlaterSeptember 13, 2018
It’s tax season. Again.
It seems like every year tax season comes earlier and earlier, but it doesn’t get any less complicated. If you’re starting to feel stressed about filing your taxes, take a deep breath. We have you covered! Check out these seven tips to help you start the tax-filing process.
1. Know Your Total Income
If you have a salaried job, it will be relatively easy to know exactly how much money you made this year with the documents to back it up. However, if you’re self-employed or have a side job like driving for Uber or freelancing, you may not know your exact income for the year.
It’s important to track how much you’ve made from your side hustle and compile the right documentation to determine how much you owe. There’s a section on your W-2 forms that allows you to add additional income, but if you’re self-employed or a contractor, you’ll need to fill out a Form 1040 or 1099 found on the IRS’s website.
2. Determine Your Tax Deductions: Standard vs. Itemized
The IRS allows you to take a standard tax deduction of $6,300 if you’re single or $12,600 if you’re married that reduces your taxable income by that amount. You automatically get this deduction just for filing your taxes!
If you can deduct more than $6,300 if you’re single or $12,600 if you’re married, you will want to take itemized deductions instead of the standard deduction to maximize your refund.
If you have a mortgage, have several different investments or have made large charitable donations, you may have significantly more that you can deduct. Homeowners can deduct the following itemized expenses from their taxable income:
- Mortgage Interest
- Property Taxes
- Private Mortgage Insurance (PMI)
- Loan Costs and Fees
Charitable donations, some medical and dental expenses, and state and local income taxes are also deductible. If you spent more than $6,300 on these expenses, you’ll want to consider itemizing instead of taking the standard deduction.
3. Take Above-The-Line Deductions
A simple way to reduce your taxable income is to take above-the-line deductions. Sometimes referred to as adjustments to income, you can deduct certain expenses from your gross income regardless of whether you choose to use the standard or itemized deduction.
Qualifying expenses include alimony payments, college tuition and fees, student loan interest, moving expenses, and Health Savings Account (HSA) contributions. If you have any of these expenses, deducting them from your taxable income can add up to big savings in the long run.
4. Determine Your Tax Credit Eligibility
Identify any tax credits you may be eligible for on the IRS website. Not to be misinterpreted for a tax deduction, a tax credit reduces your taxes dollar for dollar (i.e. a credit of $1,000 reduces the amount of taxes you pay by $1,000).
Some of the more popular credits include credits to help offset education costs, child and dependent care costs and healthcare costs as well as the Earned Income Tax Credit for low-income earners and the Savers Tax Credit for retirement plan contributions.
5. Protect Yourself Against Tax Scams
As soon as you get your documentation together, you should begin to file your taxes to minimize the possibility of identity theft and scams. Scammers are rampant around tax season, and it’s important to know how they target taxpayers.
If someone has your Social Security Number, they can file taxes in your name and claim your refund. Often victims of tax-related identity theft don’t know they’re victims until they file their taxes and receive a notification from the IRS saying their refund has already been given. The earlier you file, the less time there is for someone else to do so in your name.
Individuals will also call pretending to be the IRS or Taxpayer Advocacy Panel, demanding immediate payments or sending emails asking you to confirm personal information or PIN numbers.
The IRS will never call to demand payments, request for credit or debit card numbers over the phone, or threaten to bring local law enforcement if you refuse to pay. Scammers may sound convincing and even change their caller ID or email to look like the official IRS, but don’t be tricked into giving out your personal information or paying them.
6. Don’t Pay To File If You Don’t Have To
If you make below $64,000 per year, you’re eligible to use the IRS free filing software.
If you make more than $64,000, you can use the IRS free file fillable forms. The fillable forms offer less guidance but are still a good option for those looking to save money while filing their taxes.
7. Know When To Use a Professional
Some people may be able to do their taxes on their own, but if your taxes are complicated, you may want to hire a professional.
If you’re single with one job, few investments, and don’t own your home, you could get away with doing your taxes on your own. However, if you’re a small-business owner, sell real estate, have multiple sources of income, or heavily invest, you may want to consider hiring someone.
Sure, it costs money to have someone else do your taxes, but you’ll be receiving expert advice that can save you time and money. You’ll have peace of mind that your taxes have been done correctly, plus they’ll ensure that you get the best refund possible.
Even if you have relatively simple taxes, you may still want to hire a professional for their advice on planning ahead. If you’re starting to invest or are considering purchasing a home or switching jobs, you may be able to pick their brain on next steps and even how to prepare for filing taxes next year.
Filing your taxes starts with understanding your personal financial situation. This knowledge will guide you when determining what taxes you need to pay, which deductions and credits apply to you, and whether you need additional help.
Filing can be taxing, but there are ways to make it less complicated. Plus, it’ll be worth it if you get a refund out of it! Not sure what to do with that refund? There’s no better time than now to pay down debt, fund home improvements, or begin saving for the down payment on your dream home.