Doing your own taxes can seem overwhelming but it’s a good opportunity to maximise your refund. Here are some top tips for preparing your tax return like a pro.
Did you know that 65% of American taxpayers receive a federal refund?
A federal refund can mean a fat check in the mail once you file your taxes, especially if you file them correctly.
For many taxpayers, refunds can take care of lingering bills or lead to a much-deserved vacation.
A lot of people dread doing their taxes, but preparing your tax return in a smart way can actually mean a larger federal refund than you’ve been expecting.
In this post, we’ll look closely at tips you can keep in mind when doing your own taxes. These strategies can be your secret to making the most of your next tax return!
1. Avoid Paper Tax Returns
A lot of people choose to file their taxes manually.
Paper tax returns can often mean saving money on tax software. But it can also mean more headaches for you, especially if you find tax language to be daunting.
What’s more, it can be incredibly easy to make a mistake on a paper tax return. In fact, paper returns have as much as a 20% error rate in comparison to electronically filed returns!
Errors in your tax return can mean that they are ultimately rejected by the IRS. Errors can also mean a lower total refund and higher taxes paid.
The best way to do taxes yourself often involves e-filing. A lot of companies like TurboTax make filing your taxes yourself easy and affordable. Check out https://www.ultimatetax.com/ to learn more about tax preparation software.
E-filing also means that you will always have electronic copies of your tax returns for consecutive years. This can be helpful if your filing requires numbers from prior tax returns.
2. Gather All Documents Before Filing
Doing your own taxes often means weeding through thick stacks of paper. Before you start puzzling through those documents for filing purposes, get the right ones in order.
The most important documents you need for doing taxes yourself are ones that indicate the past year’s income.
These include W-2s, 1099s, evidence of cash transactions, investment income information, state tax refunds, and any other income you may have received through unemployment, rental properties, or business operations.
Most employers and contractors will send out your tax documents by February so that you can have them in order for filing season.
3. Decide Whether to Itemize Or Not
A standard deduction is what the IRS offers to individuals or families who won’t benefit from itemizing — i.e., writing out–other deductions.
The best way to file taxes may be to simply claim the standard deduction. However, when doing your own taxes, make sure you can totally rule out itemizing before you claim the standard.
How do you know if you need to itemize or not? Itemizing basically means gathering up all of your receipts from the previous year that could earn you a deduction.
These include non-reimbursed business or work expenses, job search expenses, charitable contributions, and even medical bills.
Itemizing does require having a solid grasp of the prior year’s deductible expenses. For this reason, we recommend itemizing if you have proof of these deductions (i.e., paper or digital receipts) and if itemizing can grant you a higher return than a standard deduction.
4. Stay Organized for Next Year
It’s possible to file your own taxes like a boss if you prioritize organization. Having your receipts, proof of income and other essential documents in order can make your life so much easier once tax season rolls around.
If you’ve already filed your taxes for this year, get a headstart on next year’s filing by establishing an organization system.
This may mean investing in finance tracking software, for example, to keep a digital record of your expenses and income.
It may mean creating digital or literal files for storing receipts and tax documents. Whatever the case, make sure you have an easy and effective system in place for keeping all of your documents together for next year’s tax return.
5. Seek Assistance
Doing taxes yourself can be overwhelming, especially if you are new to it. It is possible to seek out assistance when filing your own taxes so that you can maximize your refunds.
A lot of people resort to a personal accountant when it comes to filing taxes themselves. This may be especially smart if you are a business owner. Many accountants do not charge an egregious amount for their filing services.
Others may be able to qualify for free tax filing assistance if finances are an issue. In fact, a hefty portion of standard taxpayers may qualify for free filing assistance.
Visit the IRS’s website to learn more about assistance and filing counseling for low-income or elderly taxpayers.
6. Educate Yourself
Doing your own taxes doesn’t have to feel like signing up for a foreign language class. The best way to maximize your refunds this tax season is to educate yourself.
This may mean a lot of things to different taxpayers. If you are a self-employed individual, for example, your tax filing will likely be a lot different from an employed individual.
The same goes for business owners, those receiving social security, homeowners, and families.
It’s possible to learn about how the tax system works in the U.S. simply by researching online. You can also learn about deductions you may qualify for via the IRS’s website itself.
A lot of e-filing companies such as TurboTax enable users to consult certified accountants while filing taxes. Others have community forums that often answer a lot of taxpayer questions.
7. Understand What “Dependent” Means
If you are doing your own taxes, you may be tempted to instantly gloss over the component that asks about dependents. This is particularly the case if you are a single individual without children.
However, if you do support a friend or family member for various reasons, you could qualify for a tax deduction.
Let’s say that you have enabled a friend to live with you for a year to help her get back on her feet. Or perhaps you’re caring for your aunt who is navigating a difficult illness.
These situations may enable you to deduct a little over $4,000 when filing your taxes.
8. Explore Above-Line Deductions
Above-the-line deductions are adjustments to your income that enable you to pay fewer taxes for the prior year.
The good news about these deductions is the fact that you don’t have to worry about itemizing in order to claim them. Some examples of above-line deductions include expenses for moving or paid self-employment tax.
These deductions are called “above-the-line” because they physically reside above the line on your tax forms where you have to report your gross income.
9. File On Time
One of the biggest secrets to filing your taxes yourself is knowing the filing deadline. Filing deadlines are typically in mid-April in the U.S.
What’s more, make sure you do file your taxes on time. Missing this deadline can mean paying interest on your tax balance. You may even be liable for certain fees if you don’t file for a legal extension and miss the deadline.
10. Seek Out Refundable Tax Credits
Refundable tax credits are exactly what they sound like: a matched reduction in the taxes you owe to the IRS.
An example of a refundable tax credit is the earned income tax credit, one that benefits working individuals with low to middle income. Refundable credits essentially give taxpayers a refund, as they are credits that surpass an individual’s total tax liability.
Other refundable tax credits include the American Opportunity Credit, Premium Assistance Tax Credit, and Additional Child Tax Credit.
11. Consider an IRA
If you set aside money for retirement in the previous tax year, you may be eligible for a deduction.
What’s more, if you contribute significantly to an IRA this coming year, you could claim up to $6500 in deductions, depending on your age. If you are already looking ahead to next tax season, consider contributing to an IRA now for tax and retirement benefits.
12. Deduct Your Home Office
If you are self-employed, you may be eligible for a home office deduction. This is particularly the case if you work from home or rent out an office solely for business purposes.
A home office in this sense is technically a business expense. However, there are some exceptions. Learn more about the home office deduction here before you go about filing your own taxes.
13. Don’t Neglect State Taxes
It’s easy to get caught up in federal tax stipulations alone. But don’t forget about your state obligations when doing your own taxes.
Depending on the state you live in, you may be obligated to a state income tax. Learn more about state taxes here via the IRS’s list of government websites.
Don’t let this aspect of doing your own taxes alarm you. In most cases, taxpayers are eligible for state tax refunds.
14. Keep Your Tax Documents for the Future
Once you start filing your own taxes, it’s important to hold on to every year’s tax documents for future reference. This is important if you choose to re-file taxes for a certain year, in case of an error.
You may also need to refer to past years’ refunds when filing future taxes. Most e-filing companies keep all of your tax return data on file for this reason.
Store income documents electronically as well in case they come in handy down the road.
15. Use Tax Refunds Wisely
Doing your own taxes doesn’t have to be stressful! Often it results in a hefty refund.
When your refunds do arrive, use them wisely. Many people use their refunds for investment purposes, while others set them aside for future tax payments.
We recommend having a plan for your refund before you file, particularly one that fits well within the scope of your financial future.
How to Win At Doing Your Own Taxes
Handling your own taxes this tax season does not have to be difficult. Stay organized, educate yourself, and seek out assistance if need be.
Avoid filing a paper tax return to minimize errors. Explore all applicable deductions and decide whether or not itemizing is right for you. Always file on time to avoid any penalties.
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