Earlier is better when it comes to working on your taxes. The IRS encourages everyone to get an early head start on tax preparation. Not only do you avoid the last-minute rush and potential errors, early filers also get a faster refund.
There are five easy tips to get your taxes in long before the April 15 deadline rolls around:
Gather your records in advance. Make sure you have all the records you need, including W-2s, 1099s and other relevant receipts. Create a file or folder in advance to store tax documents for the tax year. As you received the tax documents, put or scan them in the folder. Don't wait until the last minute to gather all the tax documents.
Take your time. Don't forget to a break when completing your tax return. Rushing can mean making a mistake and that particular mistake can be expensive! Check to make sure that you input everything in the tax software correctly or if you hired a CPA, Check to make sure that you submit all the supporting tax documents to your CPA.
Contact your CPA for questions or perform your tax research early. If you have questions regarding to a special tax situation such as buying or selling your house, moving or changing jobs, do your tax research early or consult your CPA ahead of time. Do not wait until the last minute.
Double-check your math and Social Security number. These are among the most common errors on tax returns. Spending more time to review each schedule and make sure you have the correct numbers reduce your chances of hearing from the IRS.
Get the fastest refund. When you file early, you get your refund faster. Using e-filing with direct deposit gets you a refund in half the time as paper filing.
If you owed tax last year or received a huge refund, you may want to adjust your tax withholding. Owing tax at the end of the year could result in underpayment penalties. On the other end, if you received a large refund, you lost out on having the money in your wallet throughout the year. Changing jobs, getting married or divorced, buying a home or having children can all result in changes in your tax calculations.
The IRS withholding calculator on IRS.gov can help compute the proper tax withholding. The worksheets in Publication 505, Tax Withholding and Estimated Tax can also be used to do the calculation. If the result suggests an adjustment is necessary, you can submit a new W-4 to your employer.
The tax code provides numerous tax incentives for families who are paying higher education costs or are repaying student loans. You may be able to claim an American Opportunity Credit or Lifetime Learning Credit for the qualified tuition and related expenses of the students in your family (i.e. you, your spouse, or dependent) who are enrolled in eligible educational institutions. Different rules apply to each credit and the ability to claim the credit phases out at higher income levels.
If you don't qualify for the credit, you may be still able to claim the Tuition & Fees deduction for qualified educational expenses. However, you cannot claim this deduction if your filing status is married filing separately or if another person can claim you as a dependent on his or her tax return. This deduction phases out at higher income levels.
You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income or above the line deduction so you do not have to itemize your deductions on Schedule A on Form 1040 to get this tax benefit. However, this deduction is phased out at higher income levels.
If you can't meet the April 15 deadline to file your tax return, you can file an automatic six-month extension from the IRS. The extension will give you extra time to file the tax return to the IRS, but it does not extend the time you have to pay any tax liabilities. Be careful though, you will owe interest on any amounts not paid by the April 15 deadline, plus a late payment penalty if you have paid less than 90 percent of your total tax by that date.
When preparing to file your federal tax return, don't forget your charitable contributions. Your donations can add up to a nice tax deduction for your personal taxes if you itemize deductions on IRS Form 1040, Schedule A.
Here are a few tips to help make sure your contributions pay off on your tax return:
You cannot deduct contributions made to specific individuals, political organizations and candidates, and the value of your time or services to different charities.
To be deductible, contributions must be made to qualified organizations.
Organizations can tell you if they are qualified and if donations to them are deductible. Taxpayers can also search the Exempt Organizations by going to http://www.guidestar.org to check if an organization is qualified. In addition, taxpayers can call IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500. Be sure to have the organization's correct name and its headquarters location, if possible. Churches, synagogues, temples, mosques and governments are not required to apply for this exemption in order to be qualified.