Now that we’re into the new year, “Tax Season” has officially begun. It’s that time again when tax preparers start getting a little (or a lot!) busier. It’s the time when one’s thoughts turn as much to groundhogs and their shadows as they do to, “How am I going to get all the tax credits that I deserve?!” But there’s no need to fret because getting all the credit you deserve isn’t weather prediction science. In fact, with just a few simple tips you can sleep soundly knowing that you’ve gotten everything back from the IRS that you can. Let’s take a look.
Don’t leave money hanging out there
Things like Flexible Spending Accounts (FSA), retirement accounts, and 529 college savings plans are great ways to put aside money for some of life’s important things (medical expenses, retirement, education) without the money counting towards your taxable income. So, if you forget to use your FSA funds or neglect to make retirement or 529 contributions then you’re essentially leaving money out there. Your money. Some people even make the mistake of not filing a tax return at all, thinking their income didn’t require it. And while this may be true, you could still be leaving refund money out there. So, file away!
Get your deductions!
This is an obvious one but a biggie: Make sure you get all the deductions that are coming to you. Sure, there are great refundable credits like charitable donations, medical costs, education expenses, and in Montana there is even an Elderly Homeowner/Renter credit, along with numerous others, but don’t forget about your non-refundable credits as well. Non-refundable credits are subtracted directly from the taxes you owe–as opposed to being deducted from pre-tax income.
All things in moderation
It’s easy to make poor decisions when you get caught up in minimizing tax debt—like choosing the wrong tax “professional” who might take unnecessary risks or make incorrect decisions. It’s also possible (and tempting) to be too aggressive with one’s deductions. Home office and business expenses are often abused and misunderstood areas. Be sure to save your receipts so you can support your deductions, just in case. Knowing the rules for what’s deductible and what’s not isn’t a bad idea at all.
Use your best filing status
Single, married, divorced—your relationship status on December 31st determines your filing status for the concluding year, and choosing correctly can make a huge difference on your taxes. For singles who cover more than 50% of the cost of maintaining a household, “Head of Household” status provides a higher standard deduction than “single” status. Even married couples who file separately can gain higher refunds by reducing each partner’s adjusted gross income.
Report all of your income
Make no mistake, the IRS knows your income, and errors in reporting can be costly. Even honest mistakes count. Interest income, dividends, and income from contract work are income sources that filers often miss. Do your homework and stay safe out there!
Meet your deadlines
No one likes paying interest and penalties. Get started with plenty of time to spare, get it done, and get it filed. And remember, filing an extension only extends your time to file, not your time to pay. So, if you’re going to owe, be sure to pay by April 15to avoid paying even more.
Check math, spelling, and account details
Math errors, spelling errors, and incorrect account details can all slow down your returns, resulting in later or even incorrect refunds. Take the time to make sure all of your information is correct and it just might pay off.
Finally, don’t forget to sign your return, and make sure your tax preparer does as well. You’d be amazed at how many people forget to sign their returns and find the process delayed as a result. It’s probably the easiest part of filling out your returns, if you don’t forget to do it.
See, that wasn’t so hard! Maximizing your returns is as easy as it is profitable and smart. Get everything that’s coming to you and you may never look at Tax Day the same way again.