While getting a tax refund is fun, preparing and filing your taxes rarely is as fun.
As you think about how much you pay in taxes, consider this – in 1944 to 1945, the highest marginal tax rate was 94% and applied to any income more than $200,000 — or about $2.7 million today, given inflation. While I wouldn’t mind making $2.7 million a year, giving almost all of it back would make me want to delay filing as long as possible. (If you do owe, make sure you pay on time or work out a payment plan so you don’t hurt your credit. Want to see if your taxes have affected your credit at some point? Take a look at your free credit report snapshot on Credit.com.)
Fortunately, our tax rates aren’t that high anymore and almost 73% of tax filers get a tax refund. So, this year, why not go for the quick financial win and get your taxes done early? And if you end up finding out you owe, knowing sooner can help you budget to have money to make that payment.
1. Wait Until the Season Starts
If I’ve done my job convincing you to get your taxes done early, you may be eager to file so you can get your return as quickly as possible, thinking the first of the year is the day to start (so you may feel like you’re already behind).
While I appreciate the enthusiasm, wait a moment — the IRS doesn’t start processing returns until the start of the “tax filing season.”
The tax filing season for 2017 doesn’t start until January 23. You can prepare and file before the 23rd, but tax preparation software (and an accountant) will hold returns until the start of the season.
You can start getting everything you need together now, but don’t rush to file until after the tax filing season starts.
2. Keep Track of Outstanding Documents
Keep a checklist of all the outstanding documents you need to prepare your taxes. As documents come in, put them in a special folder and mark them off your list.
The typical taxpayer will have a W-2 from their employer and 1099 Forms from banks, brokerages and other income sources. Issuers need to get those forms in the mail by January 31, so you should have them all by early February. The only exception is a Form 1099-B (Proceeds From Broker and Barter Exchange Transactions), which has a mailing deadline of February 15. Many institutions now issue these forms electronically, so if you haven’t received any of yours in the mail, you may opt to check your account online.
If you have a mortgage, look for a Form 1098 from your mortgage company because that will indicate how much mortgage interest you paid that year. If you have student loans, be on the lookout for a 1098-E from your loan servicer(s). Companies are required by law to have these in the mail by February 15.
If it’s mid-February and you’re missing a form, contact the institutions responsible for mailing it to you.
Once it’s officially tax filing season and you have all your documents, you can start filing.
3. Consider Using Tax Preparation Software
Tax software is probably the quickest way to complete your taxes because the software is designed to be as easy to use as possible. If you have a very simple tax situation, many tax software companies have programs that allow you to file for free. (If you’ve never used this type of software before, the first step is to compare your options and decide which one is best for you.)
Most tax preparation software uses simple questions to walk you through complicated tax forms step by step. The software can help you maximize deductions and find any tax credits you qualify for. Your tax situation may seem tricky to you, especially if you’ve tried to decipher everything on Form 1040, but the companies behind tax preparation software have seen millions of returns, which makes your situation easier for them.
Many of the tax prep software systems also integrate with payroll providers and banks, so if you give them access, they can import a lot of your information automatically. This cuts down on the data entry you’ll need to do and can help reduce errors. In some cases, they can use this integration to get information off a form you haven’t received a hard copy of yet.
This tip won’t get your taxes finished earlier, but can help you get a refund faster.
When you e-file, your return gets to the IRS faster. With that, you bump up your odds of having your return getting processed faster, which means your refund is sent to you sooner. If you elect to get a direct deposit, the refund gets to you even faster. Typically, the slowest way is to file by paper, mailing in your return and requesting a check in the mail.
So, if speed is of the essence, e-filing your return is the quickest by far.
After you’ve filed, you can check the IRS Where’s My Refund tool to see where your return is in the process. You must wait 24 hours after you e-filed or four weeks after mailing a paper return (see what I mean about mailing being incredibly slow?) to check the status.
The post 4 Things You Need to Know About Filing Your Taxes Early appeared first on Credit.com.