There is one thing that raises blood pressure for everything and that thing is the annual tax payment. People work more for the government than for any other person or company and they usually work from January to June just to pay taxes.
1. Never pay more taxes than you really need. Never pay less taxes either. Do your math correct and at least twice review the return before filing.
2. If you prepare your own taxes, it’s advisable to have some one else also check for the accuracy and calculation. Even if you e-file, have your partner or a reliable someone take a look in to the return for accuracy. You can print out the PDF copy and strike out SSN if you like before the second person checks the return for accuracy. (Related – The Pro’s and Con’s of Preparing Your Own Taxes)
3. Always double/triple check your social security number when paying taxes because if you enter the wrong number IRS may take legal action against you and you will need to pay for all the expenses since the mistake was your entire fault.
4. If you are married or living with another person you should always fill the tax form together to avoid paying much more taxed, I always file “Married filing jointly” return. Tax advisors cite several instances where filing separately makes more sense, Still in most of the cases joint tax return has more deductions and lesser hassles to file the return itself. If you see the tax tables for 2012, tax burden on two different single individual is quiet higher than two individual filing jointly.
5. Always indicate all the dependents you have in your house because number of dependents reduces the tax burden. Do remember though that dependents should have been your dependent at the end of the year, 31st December. So your newborn can’t be claimed a dependent if he/she was born after December, 31st.
6. Always mention that your spouse is deceased if he or she really is. This will not make you a single person and you will pay less tax instead. You may even be able to receive half of the pension (if he or she was retired) for as long as you live.
7. If you are investing for your retirement with a pension account, always mention that in the tax form to reduce applicable taxes.
8. Always sign and date your return, when you are filing non-electronic return. For us, who do a free efile electronic tax return, we don’t have to worry about this as we can’t submit the form unless we digitally sign the return.
For paper returns though, mistakes might happen and unsigned returns are considered not filed.
9. Check all your stock investments and see if they are able to reduce your tax a little bit by showing the actual loss. Take a printout of your stock transactions.
Remember unrealized losses (stocks you didn’t sell off during the year) can’t be shown as money lost and can’t be claimed. Forgetting about doing this will always result in more taxes.
Remember you can only show up to $3,000 loss in a calendar year. Further losses can be carried forward to next year’s tax return.
10. Always keep your records in a safe place because if you lose them and your government requires them in the future, you will be in trouble and you will have to pay them again.
I was once told by H&R Block to save 3 years of returns, W-2’s and 1099 statements from financial institutions, as IRS may seek those information within 3 years from filing.
11. If you are a person with a disability, mentions all your disabilities and always with medical records to support disability status. This way you pay less taxes and you avoid an investigation to check if in fact you are really disabled. For further information on disability benefits, you can refer to the IRS site.
12. There are some special cases when two married people will benefit if they fill the taxes in a separate way. Check with your tax consultant about this matter.
13. If you are 65 or older you may be eligible to pay less tax. Check the senior citizen tax benefits here.
14. Do not forget to declare your foreign assets and income, don’t take chances with IRS. You may be charged a heavy penalty if you don’t do so.
15. Always compare between standard deduction and itemized deduction routes. Take the route that gives you maximum return. Not comparing both is one of the biggest mistakes one can ever do.
16. Do not forget to include W-2’s, 1099 and 1099 INT and 1099 DIV forms whichever is applicable. For e-filers, don’t forget to include the tax payer’s ID for each of the financial institution. Do not mistype the numbers, always verify after the number is entered through the keyboard.
17. Too many bank accounts to hold tax return amount may result in error. I am also skeptical about Visa debit cards that are specially designed to fund with tax refund money. I am much more comfortable in having the entire proceed in one checking account only.
18. Never miss a tax deadline. File your tax return as early as possible. You will lose a lot of money in interest if you do and the worst it can happen is legal action fully covered by you. You will have to pay extra tax and all the legal expenses.
19. Never wait until the last-minute to fill your tax form. Maybe you have one or more pendent factors that need to be solved soon and so if you only look at the form in the last day and realize that you have one problem to solve that would result in tax reduction; you will lose money by paying extra tax.
20. Omitting income is one of the worst mistakes you can do to save on taxes. The government is very likely to find out and to make you pay extra money for this situation and even take legal action against you. Take time and find all your investment accounts. Even missing a $20 interest from a saving bank account can land you up in a messy situation, if IRS audit catches it.
21. Use tax software or, online tax filing sites to see how much you can save by changing some values here and there. This is very useful to calculate how much tax you are likely to pay next year if you keep your present income, expenditure and investments.
Paying less tax is possible. There are companies, businesses and software which can help you pay as little tax as possible either by taking advantage of the law or by getting smart and to declare your income the right way to avoid having IRS knock at your door.
Readers, what other tips you may like to share with fellow readers?