With just a few weeks left to file taxes, the pressure is mounting. Nearly a quarter of all taxes are filed in the last two weeks, so don’t worry if you fall into that category. Everyone dreads the process. There is nothing fun about digging through old records, organizing under pressure, and possibly finding out how much you owe after the painstaking process.
If by chance you waited too long and are scrambling for time to get your documents in order, you can file for a 6-month extension, by filing form 4868 with IRS.
Find below som typical tax situation and professional tips that can help you while you prepare your tax return.
Sorting through the information
A huge reason we procrastinate with taxes is the sensory overload, we end up in a state of complete confusion. There is so much to do that we become paralyzed to even try, and without a background in accounting, the task seems near impossible.
But as with most entrepreneurs and business owners, perhaps the biggest skill we all have in common is the ability to embody any and all roles in the business.
Especially in the case of a new business where every dollar counts, sometimes the only choice is to work past your confusion and get the job done.
Even if you are not self-employed, this feeling could easily apply to you if you’re on a tight budget.
You could miss out on potential tax breaks, so consider using an accounting software. There is some great online software that can hold your hand through the process, which is much less costly than hiring a CPA.
For low-income taxpayers, the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit may provide valuable returns, so be sure to see if you qualify.
Some software worth checking out:
- TaxAct Online
- Credit Karma
Most programs allow you to start for free, so it’s always worth a try to see if its right for you.
If you would rather do it yourself
Start by putting down a plan in writing, something to the point and step by step. The organization is key- so if you found yourself rushing this year, set a start date well in advance to tackle the job in small portions on a weekly or monthly basis for next year’s filing.
All of your forms, receipts, and information should be sorted into five separate folders:
- Contributions (Charity)
- Taxes Paid
- Deduction Receipts
You also need the right tools.
- A tax checklist will greatly help you with your preparation.
- A tax return estimator is a great preliminary tool, as it can give you a good idea of what to expect when filing.
Changing your mindset
If you have ever filed taxes and end up owing, instead of getting a return, you’ll probably be hesitant about the process the next time around. In this case, changing the way you perceive a situation will inevitably change the outcome.
A healthy mindset is to structure your outlook into the acceptance of owing.
Whether you have or have not owned in the past, the sooner you know the better you can prepare to make the payment.
It’s worth noting that even if you file early, the balance isn’t due until the deadline, which gives you extra time to sort out your finances.
If needed, you can work out a payment plan with the IRS, just pay close attention to the interest rates as you may or may not want to explore other loan options.
At the end of the day, the refund we get is money that was ours, to begin with. Take the amount that you are accustomed to getting a refund and split it up between 8-12 months.
Automatically put that into a separate account specifically for taxes, as this will leave you much more prepared the next time you have to file. If you need it, the money is there, but if all goes well you may end up giving yourself a nice tax refund.
A healthy mindset will help you prepare ahead of time, which can benefit you in many ways. If caught early enough it gives you the option of putting your investments into more tax-friendly options.
It also can help you increase valuable contributions to retirement plans, health savings accounts, 529 college plans, IRA, or 401(K).
You can systematically plan your donations in advance to lower your taxes when they are due, instead of last minute attempts at deductions.
Triggering an audit
If this is weighing heavily on your mind, a licensed tax expert who specializes in audits can work with you to prevent this from happening.
Your licensed tax expert will be able to give you audit support (make sure to get it in writing) and identify any potential flags or triggers.
While this may not be true for all cases, the more you do by yourself, the less your tax professional will have to do, which will ultimately help your bottom line.
If you aren’t doing anything fraudulent, you shouldn’t lose sleep over this. It can be annoying to deal with, but there is only a small likelihood that this will happen to you.
It has has been projected that the number of audits is just over a million (out of approximately 200 million filings), which is a figure that has been steadily reducing for a number of years. In some lucky cases, you may even score a refund as a result of the audit.
Let us know if you have a question on any of the above or you want to share any other tax tips with us.