Need to Know: Top 10 Tips for Taxes
May 14 2015
Nothing is certain besides death and taxes, Ben Franklin said, so before you go shopping for caskets at Costco, make sure you know the most important tips about your yearly filing – it can save you serious cash, time, and hassle. Read below for some back-pocket wisdom; then you can go on with deciding what your headstone will say.
1 File online for free when you earn less than $58,000 annually
More money, more problems, right? If you’re not exactly in the top tax bracket, you’re in luck in at least one way. Taking care of your taxes is free through the IRS when you e-file, so you won’t have to shell out any more than is already required. This is the most hassle-free and accurate (not to mention eco-friendly) method, and you can easily do it yourself as long as you understand all of the possibilities for deductions and tax codes. But don’t sweat it – the online system is fairly straight forward.
2 Request estimated taxes quarterly if you’re a freelancer/contracted worker/self employed
Are you Picasso’s protege, selling your oil paintings at coffee shops? Or maybe you’re solely accepting the menial wages of freelance writing? You’ve chosen a unique career path that doesn’t necessarily streamline records of your income, and it can come as a real surprise when April arrives and you’re not aware of all of the x factors when filing. Worst case scenario, you could be slapped with an unexpected amount to pay to Uncle Sam. Especially if your salary fluctuates, it’s wise to keep tabs on your taxes throughout the year. Fortunately, you can check up on estimated amounts of your particular circumstances quarterly, thanks to the IRS. Using the prior year’s federal tax return as a guide, use the worksheet Form 1040ES to calculate your estimated tax. Simply fill this out quarterly to keep in-the-know with the highest accuracy.
3 Get a refund from refundable credits – even with zero tax liability
You file your taxes, and the verdict isn’t what you thought. Didn’t get a refund, but received refundable tax credits? This can actually provide a refund, even if you have zero tax liability. That’s right – pay no taxes, and receive extra cash. Paying less taxes is always nice, and there are more ways than deductions and exemptions to get cash instead of give it. Unlike deductions and exemptions, which lower your taxable income, credits directly lower your taxes. To claim Earned Income Credit, worth from about $460 to $5,700, you must have an Adjusted Gross Income below a certain threshold depending on circumstances. For example, if you earn $36,000 or less and have one child you qualify; but if you are married and filing jointly, you can earn up to $41,100 and still earn credit. If this credit exceeds the taxes you owe or you have zero liability, this credit will turn into a refund. Set up a direct deposit and reap your reward.
4 Request an extension until October
The IRS realizes even e-filing isn’t full of fun and you may be busy sorting your receipts for awhile. Put it all off as late as October by filling out Form 4868. This doesn’t mean you can push what you owe past April 15th, however. Make sure you plan accordingly! You can pay with a credit card for low amounts. Fortunately, you have another option below.
5 Pay with installment options
Since your potential taxes are due in April and this may be a significant chunk of change, you have the option to pay in installments through the IRS. This is ideal when you owe $1,000 or more; if you owe less, either put it on a credit card or take out a loan. Now for the installment plan details: After you file your return to avoid the failure-to-pay penalty, decide how much you can pay; the more you pay, the less interest you will accrue. Depending on your circumstances, you can receive up to 120 days through the online payment application or over the phone. Don’t let your bill go to collections! The IRS will work with you and your needs.
6 Understand that the tax code changes every year
The tax code is currently 4 million words – longer than The Bible and pretty much everything else you’ve possibly read. It also changes (5,000 modifications since 2001) and grows several times each year, if you can believe it. Be aware of the new rules for maximum earned income credit, re-configured thresholds for tax brackets, and other changes, especially if you’re filing them yourself online. You wouldn’t want to miss out on deductions or exemptions, and especially that aforementioned refund credit. Check up on the changes at TurboTax.com or on the IRS website.
7 Know the refund changes due to Affordable Care Act
Due to the Affordable Care Act put forth by the Obama administration, your tax refund may be reduced as a penalty for not having health insurance, the amount depending on your income. Concurrently, holding health insurance may result in a tax subsidy by which you receive assistance to pay your premiums. Make sure you understand your health insurance policy, where it’s Obamacare or not, and how it affects your tax refund.
8 Estimate your refund using your paystub
Similar to receiving tax estimates as a freelancer, you can estimate your refund on your own using your paystub. Basically, you enter your demographic information, number of exemptions, and use your paystub to enter your taxable wages for the year. Tax Slayer’s online calculator estimates your refund in moments – much more quick and simple than downloading an online software or doing it the old fashioned way. Check out Tax Slayer for the detailed instructions.
9 Know what factors delay your refund
Sometimes, your taxes don’t get processed right away and your refund seems to never arrive in your checking account. What gives? There are a few reasons for the delay. Instances like filling out an incomplete tax form, calculation errors of taxable income amounts due to negligence of tax code changes, mismatching social security numbers, filing too early or too late, making last minute changes, and so on. Let’s avoid delaying your cash, shall we? Keep informed, triple check the accuracy of your information, and complete it in full on time. You’ll thank yourself later.
10 Be weary of tax ID theft
In the age of technology, we are equipped with the ability to file paperless taxes easily, but this comes with a price – the possibility of tax ID theft, and therefore, tax refund theft. It may seem unlikely, but the IRS reported over 640,000 cases in the first 9 months of 2012 alone. Avoid this type of theft by protecting your social security number, primarily. This means only giving it out when you absolutely have to and keeping your card in a safe place at home. Also obtain a free credit report periodically and monitor loans, credit cards, and other credit-affecting charges that may have been obtained illegally. Thieves only need your social security number, address, and an account number to do damage, so keep any documents with private information under wraps and out of sight. If tax ID theft happens to you, alert the IRS first, then affected agencies such as your credit card bureau. After someone has received your tax return, it can take up to a year to resolve and receive any compensation. Take all of the necessary precautions!
Filing your taxes doesn’t have to be draining and cumbersome – but some of us dread it more than death itself. Before you get too frustrated with all of the rules and exceptions, consult the Interactive Tax Assistant on the IRS website, your accountant friend, or an agency as a last resort. Keep informed, tread lightly, and maximize your return! Your vacation is waiting.
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