The time most of us dread is drawing near—yep, it’s almost tax season. However, there is a way to prepare for this annual task so that there are no gotchas to fear, and only a calm sort of resignation that we’re all in this together, and this is part of our patriotic duty for the betterment of society. Hopefully with some wisdom on your side, you can make this the year (and every year thereafter), where you are prepared for tax season and just ride it through. And then get ready to welcome spring into your life.
First, be aware that the deadline for filing this year is Tuesday, April 17. If you are going to be unable to file in time, you must file an extension! However, the standard six-month tax extension doesn’t buy you more time to pay any taxes you may owe. That means that if you don’t pay your tax balance by the filing deadline (April 17), you’ll get hit with penalty and interest.
The first thing to do is to gather the pertinent information you will need to file (whether or not you use a tax preparation service or self file). At the very least, you will need all proof of income for the household including W-2 forms from employers, 1099 forms, investment income, unemployment income, rental property income, etc. Also have social security number(s) handy. To help reduce your tax bill, gather up items like your homebuyer tax credit, IRA contribution statements, student loan interest, self-employed health insurance as well as childcare costs and medical expenses. There are many more documents that qualify for this groundwork. Check out the Tax Form Preparation List on the IRS website; a great source for getting organized.
Maximize Your Retirement Contributions
A perfect way to plan for your future and reduce your tax bill! For those of you who participate in an employer 401(k) or deferred pension plan program, this is something you should have been doing all year long. Think ahead for next year and try to bump up your contribution to get the maximum match available. If your employer does not offer a retirement plan or you have maxed out your contributions, consider a traditional individual retirement plan or Roth IRA. A traditional IRA offers a potential tax deduction for the tax year. (A Roth IRA does not offer tax savings when you contribute but is tax free when you make withdrawals during retirement.) For tax year 2017, the contribution limit to 401(k) and 403 (b) plans is $18,000, plus a $6,000 catch-up contribution for those 50 and older. IRA limits are $5,500, and an extra $1,000 for those 50 and older. State ECU can help you get a traditional or Roth IRA up and running—there is no minimum amount required and you can even get automatic contributions set up.
Adjust Your Holdings
You can adjust your tax holdings from your salary to attempt to control whether you owe taxes or get a refund. For example bump up your holdings if you didn’t withhold enough and owe money. Conversely, if you have been getting a significant refund in prior years and would rather get the money throughout the year, then reduce your holdings. (Use this year’s results as a gauge for next year.) You can speak with your HR department and revise your W-4 to do this.
Get Your Earned Income Tax Credit!
Did you know that one out of every five workers fail to claim the earned income tax credit (according to the IRS). If you earned less than $53,930 in 2017 you may qualify for the credit. Check out more about this at the IRS’s EITC Tool Assistant.
If you made charitable donations in 2017, don’t forget to include them if you itemize your donations (find those receipts!). Remember the donation is limited to the item’s fair market value. If more than $500, you will need to file Form 8283. The just passed tax reform bill with its changes to the standard deduction in 2018 may affect your ability to receive a tax deduction due to your charitable giving in 2018. Be sure to understand the tax reform so that you aren’t surprised.
Avoid the Healthcare Penalty
The current rule is that you need to provide proof that you and your family have medical coverage in place or qualify for a health coverage exemption to avoid any tax penalty. Usually this just means that you indicate on your filing that you had health care coverage for all of 2017. Find more information here. (Again this will be changing for tax year 2018.)
Use E-File and Direct Deposit
The easiest and fastest way to file is via e-file. And also choose to get your refund with direct deposit into your bank account to avoid any headaches or delays. There are several ways to do an e-file, but one is through the IRS Free File. Note: if you are claiming the Earned Income Tax Credit or Additional Child Tax Credit, you must wait until mid February to file if you are expecting a refund.
Extra: Special Tip
Be extra aware of any scams relating to your taxes! The IRS will never call you (text you) to demand payment—and urge you to send a prepaid debit card, wire transfer, give them your debit or credit card number, etc. The IRS first mails you a detailed bill if you in fact owe anything. In addition, they offer you an appeal process and will never threaten that you will be arrested or deported.