Got the tax-time blues? Are you are scrambling to complete a tax return or resolving to make your return less difficult? If you have a relatively simple return and have kept good records, a do-it-yourself job might be just fine. But some say even Albert Einstein declared, “The hardest thing in the world to understand is the income tax.” Here are six tips to help making your filing easier from Professor of Accounting Kim Temme, MBA, CPA.
1. Gather and organize your records
Whether you fill out your tax return longhand, use tax preparation software, or hire a tax professional, being organized is probably the most important step you can take to save money and time. For starters, create a checklist to help you gather all the tax documents you’ll need. Include the places you worked and all the accounts you own (checking, savings, investment, and brokerage); then cross off the tax forms, such as W-2s and 1099s, as they arrive. Go through your check register, canceled checks, or credit card statements for possible deductions, and remember that you need documentation for charitable donations. Did you review your tax return from last year for anything you might have forgotten?
2. Know the important due dates
This year, you have three extra days to pull together your personal tax return. The federal due date is April 17, 2012, because of the weekend (April 15 falls on a Sunday), Emancipation Day holiday (April 16), and leap year. Make sure your particular state follows the federal due date. April 17 is also the due date to fund a traditional or Roth IRA for 2011 or to file Form 4868 to extend the time to file your federal tax return until October 15. Keep in mind that an extension of time is not an extension of time to pay.
3. Remember the number 17
Not only is this number the date your tax return is due this year, but it is also the number of an IRS publication, Your Federal Income Tax. Publication 17 is a comprehensive resource that covers everything you need to know about preparing your tax return. This year’s edition is slightly over 300 pages and is available electronically on the IRS website (www.irs.gov), with hard copies still available at IRS offices and libraries. Check out the Interactive Tax Assistant to find answers to your tax questions, which is also on the IRS website along with tax forms, instructions, and other useful publications. Those who save the most are the ones most informed about tax laws, so do your homework.
4. Don’t be afraid to itemize
It’s much easier to take the standard deduction, but itemizing instead might save you plenty of money. Itemizing allows you to deduct the actual dollar amount of certain expenses, and it is worth the trouble to pull together these expenses if you think they will be more than the standard deduction amount of $5,800 for singles or $11,600 for married couples filing jointly. The most common itemized deductions are: mortgage loan interest, property taxes, state and local income taxes or sales taxes, and charitable donations. However, don’t overlook miscellaneous expenses, such as professional dues, unreimbursed business expenses, job-hunting expenses, and tax preparation and investment advisory fees. These expenses are deductible if the combined amount adds up to more than two percent of your adjusted gross income.
5. Pay attention to the details
As anxious as you may be to put taxes behind you for another year, it shouldn’t be a rush job. Any mistakes in your tax return will lead to slower IRS processing, delayed refunds, or the possibility of IRS notices. To avoid the tedious job of filling out forms, you might want to consider tax preparation software. Tax software immediately updates your tax forms as you enter data and assures mathematical accuracy; and using it may trigger items of income, deductions, or credits you might have missed. Before filing, review your entire return, double-check Social Security numbers and manual calculations, attach all forms and schedules in the proper order, and sign the return.
6. Consider assistance from a tax preparer
Whether due to lack of time, patience, or knowledge, are you overwhelmed with doing your own taxes? A tax preparer might be worth the additional cost. There is a range of services that a tax preparer might provide, so select someone who has the qualifications and experience based on your individual tax needs. Are you looking for someone who simply takes your shoebox full of receipts and “crunches the numbers,” or do you prefer a tax professional who works with you year round to provide tax planning and advice when needed? Regardless of the level of service, if you pay someone to prepare your tax return, you are not completely off the hook. You are still legally responsible for the information provided on your return.