When it comes to taxes, everyone knows you have to report your income from a full-time job or side gig. (Of course, not doing so is a common tax mistake.) But the IRS doesn’t stop there — they expect you to pay taxes on all sorts of earnings, including these five things you might be overlooking.
1. eBay Profits
If you sell the occasional item, such as a dress you no longer like or a collectible from your childhood, you likely don’t need to report your eBay income on your taxes. Because the items you auction off are probably selling for less than you originally bought them for, you’re taking a loss and the IRS views the transaction like a garage sale.
But if you sell items regularly — auctioning off 200 items and earning more than $20,000 in sales each year — your income is taxable. PayPal will issue you a 1099-K form with your earnings for the year in addition to reporting your income info to the IRS.
But even if you don’t meet those numbers, you may still have to pay taxes on eBay sales. If you deliberately buy items to resell on eBay or manage an inventory, the IRS considers your eBay store to be a business and will tax your profits as income.
2. GoFundMe Campaign
Crowdfunding sites like GoFundMe are increasingly popular, raising money to help people with everything from medical bills to paying off student loans. But when it comes to taxes, crowdfunding can be extremely complicated.
According to GoFundMe, donations made through the site are considered personal gifts and are usually not taxable as income.
But the key word is usually. There are exceptions. In 2015, a cancer survivor who received $50,000 in donations got a tax bill for more than $19,000. It gets even more complicated if you collect donations on behalf of someone else. Even if you transfer the money to them, you could be on the hook for paying taxes on the entire amount.
Before creating or cashing out a GoFundMe campaign, talk to a tax professional about what you can do to ensure the IRS views the donations as gifts rather than income. Otherwise, you could end up having to pay taxes.
3. Free Items
Items you receive free from companies can be a tricky area. If they’re true gifts, free things are not taxable. But when there is an exchange of goods and services — such as a company giving you a product in exchange for a review on the item — the IRS considers it bartering and the value of the sample is taxable as income.
This is an important distinction, especially for bloggers and social media influencers who often receive gifted items from companies. While the monetary income from your activity may be small, the value of samples can add up quickly. You may have to pay taxes for the full amount.
4. Forgiven Debt
If you have debt your lender forgave, the amount could be taxable as income. If you repay your federal student loans with an income-driven repayment plan, for instance, part of your balance may be forgiven if you meet the program’s requirements. That’s great news, but the discharged balance is taxable as income.
For example, say you were eligible to have $10,000 forgiven because you met the requirements of your income-based repayment plan. While you no longer have to make payments on your loan after it’s been forgiven, the IRS will tax you on the discharged amount of $10,000, and you will be sent a 1099-C Cancellation of Debt form. (Here’s what to know if you get one.)
Exceptions to this rule are loans discharged through Public Service Loan Forgiveness, Teacher Loan Forgiveness and debt eliminated through bankruptcy. In those scenarios, you do not have to pay taxes on the forgiven amount.
5. Fantasy Football
Fantasy football is a $3.6 billion industry, one in which the average player spends nine hours a week strategizing. It’s a fun activity that can consume players and take over office spaces. But whether you’re a serious participant or a casual player, fantasy football can have surprising tax implications.
The IRS requires individuals to report winnings from gambling, prizes and hobbies. If you win the office pool or an online league, your prize money is taxable as income.
If your winnings are more than $600, the league or host should send you and the IRS a 1099-MISC form. But even if your winnings are below that threshold and you don’t get a 1099, you still need to report that income on your taxes.
Keep in mind: You may be able to deduct some of the associated costs, too. If you won $1,000 but it cost $500 to enter, you can report only the net profit.
Find Out If You Need to Pay Taxes
When it comes to getting their share of your income, the IRS doesn’t play around. Besides the money you earn from your job, you may owe money for other overlooked activities. If you’re unsure about what to include in your tax return, talk to a tax professional to avoid any penalties or fees.
If you’re single and under the age of 65, you have to file taxes if you make more than $10,350 a year. If you’re married, filing jointly and your household income is more than $20,700, you also have to file a return.
If you make less than those annual amounts and are a dependent on your parents’ taxes, you do not need to file an individual return.
If you’re still not sure if you have to file a return, the IRS recently launched the “Do I Need to File a Return?” tool. It’s a questionnaire that takes about 10 minutes to complete. Once you’re done, the IRS will give you a recommendation on filing a return.
Important Tax Deadlines for 2017
You were probably always taught that the tax filing deadline is April 15. Though that’s normally true, this year is an exception. In 2017, you have three extra days to complete your taxes because tax deadline is April 18.
This year, April 15 is a Saturday, and the IRS doesn’t allow the tax deadline to fall on a weekend. The following Monday is Emancipation Day, a legal holiday in the District of Columbia. The IRS closes their offices that day, so the whole nation gets an extra day.
How to Request a Tax Extension
When learning how to do taxes, remember that if you’re going through a hardship or will be unable to file your return by April 18, you can get an extension. By filing a tax extension request, you can get up to six extra months to complete your return.
An extension can give you a reprieve in filing your return, but if you owe any money to the IRS it’s still due by April 18. If you miss that deadline, you could owe late fees and penalties. (Unpaid taxes can also damage your credit report.)
Documents You Need to File Your Taxes
When you’re preparing to do your taxes, collect the necessary documents ahead of time. It’s common for forms to trickle in slowly, so keeping a folder specifically for tax documents can help you track everything you need.
Here are some common documents that you may need to file your taxes:
W-2: A W-2 is a form your part-time or full-time employer sends you. It shows how much money you made in the past year and how much you paid toward taxes, Social Security and Medicare.
1099: If you earned more than $600 by freelancing or working a side-gig such as driving for Uber, your client will send you a 1099 form. The form shows how much you made last year, but unlike W-2s, no money was taken out for taxes.
Other income records: If you worked a side hustle but made less than $600 for a client, you won’t get a 1099 but you still have to report that income. Keeping a spreadsheet of your earnings or having a separate business bank account can help simplify tax time.
1098: If you made interest payments on your student loans, your lender will send you a 1098 form saying how much interest you paid last year.
1095-A: If you got health insurance through Healthcare.gov, the government will send you a 1095-A form. This says you had qualifying coverage for the year.
Interest earned: If you earned interest from any savings accounts over the year, your bank will send you a form. This will show how much interest you gained.
Bank account routing number: To get your tax refund as quickly as possible, it’s a good idea to sign up for direct deposit when you file your return. To do so, you’ll need your bank account number and your routing number.
Expenses and receipts: If you landed a new job, moved to advance your career or attended business conferences, you can deduct associated costs. Make sure you keep receipts to use when you do your taxes.
How to File Taxes: Which Method?
While you can certainly do your taxes the old-fashioned way, using the paper forms can lead to errors. There are many options that can help you file your taxes more accurately:
Tax software: You can file your taxes electronically using available programs such as TurboTax or Credit Karma’s free filing tool. Some options are free but others have a fee, so choose a program based on your preference. If you make less than $64,000, you can use the IRS’ free filing tool.
VITA sites: If you need more hands-on aid and make under $54,000, you can get free in-person help. Try using an IRS-trained volunteer at a Volunteer Income Tax Assistance (VITA) site.
Hire a tax professional: When doing your own taxes is too confusing or complicated, hire a tax professional. They can handle your taxes for you and ensure you get the maximum refund available.
When choosing which option is best for you, consider how complex your taxes are. If you’re employed and have a side-hustle, but don’t have a business partnership or many investments, using software may be more than enough.
But if you run your own business, own a rental property or have investments, your taxes may be complex enough to warrant professional assistance.
Know Your Deductions and Credits
In the early stages of your career, you are unlikely to have enough deductions to make it worthwhile to itemize. Instead, you can claim the standard deduction of $6,300 and reduce how much of your income is taxable.
But you may be eligible for certain credits or deductions, even if you don’t itemize. Credits reduce what you owe in taxes, while tax deductions lower your taxable income. Both are valuable items to consider when doing your taxes and can help you get your maximum refund.
American Opportunity Tax Credit (AOTC): The AOTC is worth up to $2,500 per year and includes money paid for tuition and other related expenses.
Charitable Donation Deduction: If you donated money or items to a nonprofit organization, you may be able to deduct the value on your taxes.
Earned Income Tax Credit (EITC): The EITC is a valuable credit that 20% of eligible people miss out on because they don’t claim it on their taxes. The average EITC recipient gets an average of $2,482 by claiming the credit — you could be eligible if are a low-income earner.
Home Office Deduction: If you work from home or run a business from where you live, you may be able to deduct up to $1,500 on your taxes.
Lifetime Learning Credit: With the Lifetime Learning Credit, you can deduct up to $2,000 in qualifying education expenses.
Student Loan Interest Deduction: If you made payments on your student loans, you can deduct up to $2,500 that you paid towards interest on your taxes.
Tuition Fee Deduction: With the tuition fee deduction, you can deduct up to $4,000 in college tuition and other fees.
When it comes to filing your taxes, you must file both a federal and state return. If you lived in multiple states last year, you need to file a return for each state you resided in.
The only time you do not need to file a state return is if you live in a state that does not charge income tax. There are seven states that fit in this category:
You can submit your federal and state returns using tax software or you can mail in the tax forms. Depending on where you live, where you need to send the forms may change, so check the IRS website before putting them in the mail.
How to Track Your Tax Refund
If you’re eligible for a tax refund, you can track your return’s status and find out when to expect your money by using the IRS’ “Where’s My Refund?” tool. If you opt for direct deposit, you can expect your refund in as little as 10 days after filing.
How Can I Pay My Taxes If I Owe the IRS Money?
If instead of a refund, you owe money to the IRS, you have different payment options. If you use software to prepare your taxes, you can usually pay the money owed electronically through the program.
If you did your taxes on your own or didn’t pay electronically, you can use the IRS payment tool. Just make a payment through your checking account on the IRS website.
If you owe more than you can pay upfront, you can contact the IRS to set up a payment agreement and make monthly installments.
Learning How to Do Your Own Taxes
Figuring out how to file taxes for the first time can be confusing, overwhelming and stressful. Managing the process on your own can be difficult.
Using this guide — and the help of tax software or a professional — can help streamline the process and ensure you handle your taxes correctly.
With April 18 just around the corner, chances are you and your spouse are knee-deep in tax work. Most couples file jointly to take advantage of various benefits but depending on your situation, you may want to file separately.
We tapped Kelly Phillips Erb, a Philadelphia tax attorney who blogs at Forbes, for some pointers on when to do this. (Sadly, love doesn’t conquer all when it comes to the tax man.)
1. When a Spouse Has a Tax Liability
Though your spouse’s liability won’t carry over to you, it could throw a wrench in your taxes if you file jointly, Erb says. “It can make filing taxes complicated because you have to file an injured spouse claim” if something goes wrong. For example, if your husband owed back taxes but as a couple you got a refund and the IRS decided to take it, you’d be prompted to file an injured spouse claim. This may help get part of your refund back.
Your spouse’s back taxes could also impact their credit score if the problem gets bad enough. The government could make a claim on your property until the debt is repaid, which is known as a tax lien. This will show up on your spouse’s credit report and could make it harder for them to borrow money in the future. (You can see how a tax lien and other factors may be hurting your credit by reviewing two of your free credit scores on Credit.com, which are updated every two weeks.)
2. When a Spouse Can’t Be Trusted
“When you file a return, you sign under penalty of perjury,” Erb explains, noting taxpayers vow to report everything to the letter. “If you sign the return knowing they tend not to be forthcoming, you’re putting yourself at risk.”
Erb recalls a client who dealt with this issue for 15 years and “ended up with a liability in the millions she couldn’t pay.” However, she had signed a return with her husband claiming things were just fine. The IRS eventually chased both of them down for the money, even after they separated. “When you get married, you like to think everything’s rainbows and unicorns,” Erb says, but “don’t file if you think they’re not being truthful. Ignorance is not an excuse.”
3. When a Spouse Lives Abroad
“There are some tax reasons why you might file separately, but as a rule, most people file separately for non-tax reasons,” Erb says. However, if one spouse has a different residency — not just between states but in another country entirely — it “might be advantageous to file separately, because depending on the situation, you could possibly lose credits or other tax breaks that you might not want to.”
You’re motivated by a deadline, you’re busy, you’re still getting organized — whatever the reason, you haven’t filed your taxes yet. That’s not a huge deal (there’s a deadline for a reason), but still, waiting until the last minute to file your taxes means you might be rushed. And that means there’s a higher likelihood of making mistakes or overlooking something important.
To help you avoid making a mess of an already unpleasant task, we put together a list of things you should keep in mind as you get ready to face the job you’ve been putting off for months.
1. The Sooner You File …
… The sooner you can get a refund. The IRS says it issues nine out of 10 refunds in less than 21 days.
2. Waiting to File Puts You at Risk
Taxpayer identity theft is no joke. It generally involves someone using your Social Security number to get a fraudulent refund — preventing you from getting yours in a timely manner.
3. If You’re a Tax Fraud Victim, You Need to Prepare a Paper Return
“First, I would definitely contact the IRS, and you should also contact the credit bureaus, and then you would just have to paper file your return if they already e-filed using your Social Security number,” said Lisa Greene-Lewis, a certified public accountant and tax expert with TurboTax.
4. The Deadline to File …
… Is April 18. No, that’s not a typo. April 15 falls on a Sunday this year, and April 16 is a holiday in the District of Columbia. So Tuesday, April 18 it is.
5. It’s a Hard Deadline
Your paper return must be postmarked by April 18. An e-file must be submitted before midnight on April 18. Otherwise, the IRS could slap you with fees.
6. But You Can Get an Extension
You can file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, which gives you an additional six months to file.
7. The Extension Is for Paperwork, Not Payment
If you think you’ll owe taxes, you must make your best guess using previous years’ information and an online estimate calculator.
8. Unpaid Taxes Carry Fees …
Interest on unpaid taxes compounds daily from the due date of the return to the date they’re paid in full. The failure-to-pay fee is one-half of 1% of your unpaid balance for each month, or part of a month, up to 25%, until the debt is paid in full.
9. … & Even Affect Your Credit Score
If your unpaid-tax problem gets bad enough, the government may make a claim to your property until the debt is repaid. That’s called a tax lien, and it will show up on your credit report. (You can see how a tax lien and other factors affect your credit by reviewing two of your your free credit scores on Credit.com, updated every two weeks.)
10. Make Sure You Have All Your Forms
“Keep a list of all of your jobs during the tax year,” said Abby Eisenkraft, an enrolled agent and CEO of Choice Tax Solutions. “Some taxpayers receive numerous W-2s (think actors, temps, etc.). Freelancers — you may receive numerous Form 1099-Misc; be sure you received them all.”
11. But Report All Your Income, Even If You Didn’t Get a Form
“Some employers are sloppy and may not issue them to you by Jan. 31 of the following year. Regardless, you must report all of your income,” Eisenkraft said. You can ask an employer for a copy of a missing W-2 or ask the IRS for transcripts of forms you think you didn’t get. Of course, this takes time, so you may need to file an extension.
12. *ahem* ALL of Your Income
“The easiest way to get an IRS notice is to omit reporting all of your income,” Eisenkraft said. “Also, remember that jury duty and prize money (lottery, etc.) are also taxable.”
13. Plan to Wait in Line
At the post office, at your local tax preparer’s office — anywhere that does anything having to do with taxes.
14. Take Advantage of Technology
There are several ways you can file your taxes for free without having to do them the old-fashioned way. Tax software can be a huge help when you’re facing a time crunch.
15. Affordability Is No Excuse
“Many people put off filing their taxes because they can’t pay the full amount,” said Samuel Brotman, a tax attorney and owner of Brotman Law in San Diego. “You’ll cause far more headaches if you don’t even attempt to play ball with the IRS, though.” See: aforementioned fees.
16. Make an Effort to Pay
“It’s in your best interest to file and pay as much as possible by the April 18 deadline,” Brotman said. “If you’re just not ready or able to file by the deadline, make sure you file for an extension. The IRS will automatically grant a six-month extension, giving you additional time to get your taxes in order.” Thinking about paying your taxes with a credit card? Read this first.
17. Or Get a Payment Plan
Keep in mind you must file your tax return before applying for a payment agreement, so get cracking if you think you’ll need one.
18. The Chances of an Audit Are Low
Of all the individual income tax returns filed in 2014, the IRS audited 0.8% and 1.3% of corporate returns. (You can read more about how to avoid an audit here.)
19. But You Still Need to Be Careful
Just because it’s unlikely you’ll get audited doesn’t mean you shouldn’t prepare your taxes as if you will. Not only could you get in trouble for a sloppy return, you could miss out on savings through deductions or credits you didn’t look into.
20. Watch Out for Scammers
Whenever people need help, there are other people out there waiting to take advantage of them. If you’re asking someone to prepare your taxes, make sure they’re qualified to do the job and that they have a good reputation. This guide can help you determine whether or not you need a pro to do your taxes.
21. Ask for Help
If you can’t afford or don’t want to pay for a professional, that doesn’t mean you’re totally on your own. “Go to trusted friends or family with last-minute questions on anything that might be confusing. With a little elbow grease, technology and friendly advice, you can get your maximum refund back — painlessly,” said Micah Charyn, a financial adviser with FTB Advisors in Nashville, Tennessee.
22. You’re Responsible for What You File
Keep in mind that, ultimately, you’re responsible for what’s in your tax return, even if you used software or an accountant to help you. Don’t zone out just because someone else is doing the heavy lifting.
23. ‘Do You Spell That With a C or a K?’
Of course, you know how to spell your name, but don’t leave anything to chance. This is especially important if you changed your name recently. Your tax return must have your legal name on it.
24. While You’re At it, Double-Check Your Address
This is an easy one to mess up if you’ve moved. “Your state may ask you where you lived by the close of the tax year you are filing, but you must file with your current address,” Eisenkraft said.
25. Your Social Security Number
“When you are tired or distracted, it’s so easy to transpose numbers,” Eisenkraft said. “And with so many numbers jumping out at you on the tax return, it’s easy to miss. The IRS will reject your tax return if the Social Security number is incorrect.”
26. Your Dependents’ Social Security Numbers
You must have the right Social Security numbers to get associated credits.
27. & Your Bank Account Info
You want that refund ASAP, right? “One mistake that we’ve seen before is listing the wrong bank details on your taxes,” said Jayson Mullin, the owner and founder of Top Tax Defenders, a tax resolution company in Houston. “This means your return won’t end up in your account. If you notice you’ve made this mistake, you’ll have to notify the IRS and wait an additional six weeks for a check to arrive in the mail.” The same goes for making a payment: You want that go to through.
28. Make Sure You Can Legally Claim Dependents
“There are relationship tests, gross income tests, residency tests, etc. Make sure the person you are trying to claim as your dependent passes all of the IRS tests,” Eisenkraft said. “And if your child is in school and working, remind him or her NOT to claim his own exemption.”
29. There Are Lots of Deductions You Could Potentially Take …
“I call this ‘looking for change in the sofa cushions,’” said Dominique Molina, a CPA in San Diego. “Go back through your bank and credit card statements and scan through, looking for expenses you haven’t been reimbursed for. These can be deducted on Schedule A under Unreimbursed Employee Expenses.”
31. Student Loan Interest
You can get the forms you need from your student loan servicer. They’re usually right there in your online account.
32. Medical Expenses
“You can deduct out-of-pocket medical expenses if you itemize (file Schedule A),” Eisenkraft said. “You cannot deduct any expenses that are reimbursed by insurance. If your medical premiums are deducted pre-tax at work, you cannot deduct them on your tax return. No double-dipping! Be sure to keep all of your receipts.”
33. & Job Search Expenses
You can deduct expenses associated with your job hunt, provided you’re looking for a new job in your current field.
So many people forget to do this, but it’s important. You can count charitable gifts made until April 18 of this year.
36. Or Do a Last-Minute Spring Cleaning
Say you didn’t get around to much charitable giving last year or you didn’t keep records — you could always procrastinate a little more by cleaning the house and donating things you don’t need. Don’t forget a receipt. (But then you really need to get on that tax thing.)
37. Don’t Skip the City Tax
Local and other state taxes, which you can check for at the bottom of W-2 forms, refer to a wage or income tax and may not be automatically deducted from your paycheck if you’re self employed. If you haven’t paid them, be prepared to cut a check. Here’s a handy guide to understanding your paycheck.
38. Contribute to Your IRA
Want a last-minute way to reduce your tax bill? Unlike most other tax-saving strategies, which have to be in place by Dec. 31, you can contribute to your IRA up until tax filing day if you haven’t already contributed your maximum for 2016. As TurboTax notes, for example, you can contribute $5,500, the maximum amount for 2016, and save as much as $1,925 in taxes if you’re in the 35% tax bracket.
39. Don’t Overlook Credits, Either
The IRS estimates that four out of five taxpayers are eligible for the earned income tax credit but don’t take it. A tax pro or software can help you determine if you qualify.
40. Keep In Mind Things Change From Year to Year
Just because you got deductions last year or didn’t qualify for credits last year doesn’t mean the same is true for this tax year. Take time to think about what changed.
Even if you made less than the income threshold that applies to you, don’t ignore tax season completely. “If they had federal taxes taken out of their paycheck or qualify for the earned income tax credit, they may have a refund coming,” Greene-Lewis said of taxpayers.
43. Get a Past Year’s Refund You Forgot to Claim
You have three years to claim a refund.
44. Think About the Best Way to Use Your Refund
Need some motivation to get your taxes done? The average tax refund for tax year 2015 was $3,120. You can finally buy that thing you’ve wanted to splurge on, pay down debt, or even use the cash influx to help yourself build credit.
IRS audits generally go back three years but can potentially reach back six. Keep a copy of your return in a safe place. You may also want to hold onto W-2s if you’re planning on applying for a mortgage any time soon.
47. You Can Make Amends
If you made a mistake in your rush to file, you can amend your tax return. You won’t need to do this for math errors (the IRS can fix those), but you’ll have to file a Form 1040X if your filing status, number of dependents or total income is wrong or if you forgot to claim a certain exemption or deduction.
48. Make a To-Do List
Write down everything that gave you trouble this year or deductions you weren’t sure you could get because you didn’t document them. Maybe you won’t make the same mistake next year.
49. Get a File Folder
For storing all those receipts and documents you forgot to organize this time around.
50. & Set a Calendar Reminder
So you don’t end up in this situation again next year.
As a millennial, you might have a surprisingly complex tax situation. Owing student loans, working multiple side hustles, and investing at a young age are all complicated scenarios come tax season.
Because of this, filing your own taxes often comes with added stress and unknowns. To help streamline this chore, here are eight tax tips for filing taxes when you have multiple streams of income and various financial responsibilities.
1. Don’t Miss the Tax Deadline
The most important part of filing your taxes is doing it by the deadline. The IRS doesn’t mind if you need more time or you don’t have the funds to pay the entire tax bill right now, but you must take the proper steps to alert them.
Decide which route to take: Either file your taxes completely, request an extension, or apply for a payment plan. Whatever you do, don’t ignore the situation and hope it will just go away.
If you miss the tax deadline without requesting an extension, you could be subject to penalties, interest, and late fees.
2. Choose the Right Tax Software
If your tax situation is fairly simple, you may feel comfortable filing your own taxes using a DIY tax software program. There are many reputable programs available, so shop around to find a good deal.
You may even qualify for free filing services. If you earn less than $64,000 a year, the IRS offers free software to help you file your taxes at no charge.
3. Write Off Side Hustle Expenses
Sure, you know how to file taxes for the income from your day job. But if you also earn money through a side hustle, you may have extra considerations.
For example, you may be able to write off certain expenses you incurred through your side hustle. If you purchased equipment or office supplies, these costs can be deducted on your tax return. Doing so reduces your taxable income, meaning you would owe less to the government.
4. Maximize Education Tax Savings
If you have student loans, you could save money come tax time. Nearly all education costs, whether it’s interest paid on your student loans or additional classes you’ve taken for continuing education requirements, are tax deductible. See a full list of education credits and deductions here.
List out all of your higher education expenses to see which ones you qualify for. If you’re unsure, speak to a tax professional who can offer additional tax tips, or follow the prompts in your tax software.
5. Inquire About the Saver’s Credit
The longer you wait to start saving for retirement, the less time compound interest will have to work on your behalf. To encourage people to stash away money in a retirement account, the IRS offers a tax credit called the Saver’s Credit.
The Saver’s Credit is often overlooked, even by tax professionals, but it can greatly reduce your tax bill at the end of the year.
The amount of the credit is 50%, 20%, or 10% of your retirement contributions up to $2,000 (or $4,000 if married filing jointly). The amount you qualify for depends on your adjusted gross income.
6. Deduct Job-Hunting Costs
Did you know that you can deduct any costs related to hunting for a new job? It’s true. If the new job is in your current career field, you can claim this tax deduction. Job search costs that you may be able to claim on your taxes include:
Employment agency fees
Certifications or classes
Business travel expenses
7. Block Off Time to File
Scheduling time to actually file your taxes is one of the most important tax tips. Block out time in your calendar to work on your taxes so you don’t have to rush through the process. Pretend it’s a regular appointment, and vow to keep it no matter what else comes up.
The tax filing process may take a few hours, so it’s not something you want to save until the last minute. Schedule time in your calendar sooner rather than later so you don’t feel as stressed.
8. Double Check Your Calculations
Even the smallest calculation errors can prove to be big mistakes when it comes to your taxes. Take time to double check your work: Have you listed all the deductions and credits you qualify for? Did you include all your income sources from various jobs? What about your higher education expenses and retirement contributions?
Nearly all DIY tax programs come with built-in features to ensure that your tax information is correct. The tax software will make sure your math is correct, but nothing is better than your own two eyes — especially when inputting your Social Security number, address, income figures, and expense costs.
Doing your taxes is never a fun task, but taking the time to do them correctly can save you big bucks. Educate yourself on the deductions and credits you may be eligible for and lean on free resources to help you file.
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.
You didn’t get your tax documents in order yet. You’re still waiting for a lost W-2. You just flat-out haven’t felt like tackling your taxes. Whatever the reason you don’t have your tax return completed yet, there’s no need to stress about it. Filing for a tax extension is a quick and painless experience that will give you an extra six months to file.
There are several important things you’ll want to keep in mind, though, if you’re filing a tax extension.
1. A filing extension is not a payment extension.
If you think you’re going to owe the IRS additional taxes this year, you’ll need to estimate on your extension (Tax Form 4868, which you can free file) what you’re going to owe and go ahead and pay that amount by this year’s deadline of April 18.
If you’ve been putting off filing because you know you owe and just can’t afford to pay your taxes due, you should immediately contact the IRS to ask for an installment agreement, so you can pay what you owe in smaller amounts over time.
When you enter into the payment plan, the fees and interest will be assessed to the end of your agreement, so if you plan to pay off the debt before the end of your agreement, contact the IRS to adjust your installment amount.
Also, failing to file your extension by April 18 results in a late-filing penalty, which is why it’s important to file on time.
3. Don’t bury your head in the sand.
The worst thing you can do when dealing with unaffordable taxes is ignore them. If you owe tax debt, the IRS can take serious enforced collection action, such as taking money from your bank accounts, wages, or other income. In general, they have many more options available to collect your tax debt than do other companies you may owe money to.
Under the federal Fair Credit Reporting Act, tax liens can be reported longer than any other type of negative information — seven years from the date they are paid. However, under the IRS Fresh Start initiative, you may be able to get a tax lien withdrawn and removed from your credit reports once you pay it, or enter into an installment agreement, which we’ll discuss in a moment. That’s all the more reason to find a way to work with the IRS rather than avoid paying.
It’s tax season, and if you haven’t already filed your taxes, chances are you’re a little stressed about it. But if you’re an average taxpayer, you’ve actually got it pretty sweet. There are some income situations where paying taxes can require more paperwork, more filing deadlines and, yes, even more stress.
We reached out to the folks at TurboTax to find out which taxpayers have the toughest time when it comes to filing their taxes. They offered some handy tips to keep folks in these income situations on the right track with the IRS. So, if you ever think you’ll be in one of these situations, keep this list handy.
Freelancers are a growing population of taxpayers especially with the growth of the “on-demand economy.” A recent Intuit survey found that 3.2 million people currently participate in the on-demand economy, and that number is expected to grow to 7.6 million by 2020.
How taxes are different for them:
Freelancers and the self-employed often pay income taxes and self-employment taxes as they get paid for work. Known as estimated taxes or “quarterlies,” freelancers typically make tax payments four times a year. This doesn’t mean freelancers must file a tax return four times a year, it just means they’re making payments that will be included as taxes paid when they do file their tax forms.
How to make filing easier:
Hiring a tax professional can save you time and headaches, but they can also be expensive. If you can’t or don’t want to pay an accountant, filing software is another option. Also, you’ll want to be sure to track your receipts and expenses.
“Keep your receipts and track your income and tax deductible expenses year-round instead of waiting until the last minute,” advised Lisa Greene-Lewis, a CPA and tax expert at TurboTax. “Figure out your estimated taxes. In general, if you think you will owe more than $1,000, you need to pay quarterly estimated taxes.”
Greene-Lewis also recommended taking full advantage of business expense deductions available to the self-employed. “For instance, if you … drive for Uber or Lyft, you may be able to deduct the cost of the car you purchased up to $25,000 if you use the car over 50% for your business.”
2. Commission Wage Earners
Commissions can be treated in two ways for tax purposes: as straight salary, in which case the employer would withhold taxes from the individual’s compensation based on the elections the employee makes on Form W-4P; or the individual can be treated as a self-employed independent contractor, responsible for remitting their own taxes to the IRS and state tax department.
How taxes are different for them:
It’s that second scenario that can get tricky, with special rules applying to tax withholding, including requirements to avoid excise taxes that apply to underpayment of estimated taxes. The help of a tax professional is probably in your best interest in this case.
How to make filing easier:
First, that tax professional is going to make life easier. Second, there are ways to reduce tax liability.
“Taxpayers expecting commissions or more [commissions] than usual may be bumped up into a higher tax bracket, but there are few things they can do,” Greene-Lewis said. “If they want to reduce their tax liability they can reduce their taxable income by maxing their retirement contributions, paying estimated taxes, and seeing if their employer can defer an end-of-year commission to the following year.”
3. Overseas Wage Earners
If you are a U.S. citizen or a resident alien of the U.S. and you live abroad, the IRS taxes you on your worldwide income. However, you may qualify to exclude some of your foreign earnings, according to the IRS. In addition, you can exclude or deduct certain foreign housing amounts.
How taxes are different for them:
You must keep track of all income, which can be tricky if you work in multiple regions and/or for multiple employers. All of this income must be reported to the IRS.
How to make filing easier:
“If you receive foreign income you may be eligible for a foreign tax credit reported on Form 1116 if you paid and accrued foreign taxes and are subject to U.S. tax so you are not taxed on the same income,” Greene-Lewis said. “You may be able to take a deduction, but most people take the foreign tax credit if eligible since credits reduce your tax liability dollar for dollar.”
4. Green Card Holders
Green Card holders become U.S. tax residents automatically, beginning the year they receive their Green Card. They must declare their entire income to the U.S. government (foreign wages included), unless steps were taken to be treated as a resident of a foreign country under an income tax treaty.
How taxes are different for them:
Some Green Card holders seem to think the number of days spent in the U.S. each year has some effect on whether or not they are a tax resident. This is true only for people who have nonimmigrant visas, not Green Card holders. The IRS provides answers to a lot of common Green Card tax questions on their website.
How to make filing easier:
Make sure you have your Individual Taxpayer Identification Number (ITIN). The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security number from the Social Security Administration.
Also be sure to keep track of all income, foreign and domestic, and report all of it to the IRS.
Tax season is almost upon us, which means someone, somewhere is asking the age-old question: Can I write off my cat food? (The answer: You can’t unless it’s a business expense). What you can do, however, is read this excellent roundup of weird tax deductions, guaranteed to get you jazzed about filling out that 1099. And if you aren’t ready for tax season, what are you waiting for?
1. Bar Mitzvah Networking
“I’ve seen my fair share of weddings, bar and bat mitzvahs and other large parties that were ‘100% business deductions,'” Howard Rosen, a certified public accountant and tax attorney based in St. Louis, told Credit.com via email. “When I asked for the invite list and the business relationship of each person on it, most of the deduction disappeared.” No wonder: If you’re inviting customers, bankers, attorneys and so on, you may be able to deduct the direct costs associated with those people. If it’s your Aunt Martha, 12 cousins on your mom’s side and your sorority sisters, you may be out of luck.
2. Bruno the Guard Dog
“I had a client who wanted to deduct the cost of her ‘guard dog’ because she had valuable artwork in her home,” Rosen remembers. “The dog was a Pomeranian, and I knew this because I had been to her home several times. When I mentioned I had seen Bruno and knew he wasn’t really a threat to a burglar, she tried to convince me the dog’s bite was awful and that he was indeed there to protect her collection. I suggested she install an alarm system instead.”
3. The Paleo Deduction
“Last tax season, a client wanted to deduct the cost of their family eating non-processed foods as a medical expense,” wrote John Kane, a CPA with the Cook Martin firm in Salt Lake City, in an email to Credit.com. “Their argument was that their diet — gluten-free, vegan, paleo — was expensive. There was no diagnosed medical condition, the taxpayer simply felt that they were able to think more clearly as a result of their ‘clean eating.’ This, unfortunately, is not deductible.”
4. Deductions by Way of Fiji
“Another client insisted his trips abroad were to find buyers for his products,” says Rosen. “What were his products, you ask? He was a residential real estate developer and he had never done any business outside his immediate area. I asked him to document any sales calls, banking relationships, potential buyers or other developers he had talked or met with on these trips. That ended the discussion pretty quickly.”
5. The Company Man
“I had a client that operated a handyman business and he expensed and deducted everything that was put on his company credit card,” Jared R. Callister, a CPA with Fishman, Larsen & Callister in Fresno, Calif., told Credit.com via email. “He was adamant that all expenses were business-related. However, when I combed through the receipts and found he was trying to deduct things like toothbrushes, deodorant and even women’s lingerie, it became clear that many of his so-called business expenses were just personal non-deductible purchases.”
Why hello there, Procrastinator. I know you’re busy wondering how 2015 got away from you, but here’s some good news: You still have time to make some tax moves to lower your bill before 2016. Want to do it? Of course you do. Here are some tips for those who thrive under pressure.
1. Clean Your Closet
If you itemize deductions, you might want to take some time to round up unused clothes and household items, and donate them before Dec. 31. “Take a picture of what you’re donating, make a complete list of items and value, and get a receipt,” said Gail Rosen, a certified public accountant based in Martinsville, N.J. Not only will this help you save on taxes, end-of-year non-cash donations can double as much-needed house cleaning. Cash donations and charitable donations share the same deadline, per the IRS.
2. Review Investments
You can sell losing stocks to offset capital gains, which is known as tax-loss harvesting. Read the ins and outs of that strategy here, but remember, if you’re considering tax-loss harvesting, be sure to think beyond the tax implications. “Don’t sell just for tax reasons,” Rosen warned. “It should make economic sense.”
3. Make Payments Early
You could make your January mortgage payment in December and have it count toward deductible interest for 2015. “Just keep in mind that if you do this in 2015, you have to do the same thing next year or you will only deduct 11 months of mortgage interest in 2016,” Rosen advised.
If you plan to pay tuition for courses in spring 2016, consider paying in December so you can deduct those qualified education expenses for 2015. Paying state taxes early could also improve your taxes. “If people itemize and their state has state income tax, they might consider making their fourth quarter estimated payment in December instead of January,” said Bob Wheeler, chief executive of RWW CPA in Los Angeles. Keep in mind the longer you wait to make payments, the more likely you are to miss the Dec. 31 cutoff.
4. Max Out Retirement Contributions
There are a lot of good things about saving for retirement, even in the short term. “I always suggest that you max out your retirement — it’s a great way to reduce your taxable income,” said Lisa Greene-Lewis, a CPA and tax expert with TurboTax. “When you max out your retirement, you may be eligible for the Savers Credit.” The Retirement Savings Contributions Credit, aka Savers Credit, gives a tax break to low- and moderate-income taxpayers based on income and retirement contributions. If you participate in a 401(k) through your employer, elect to make an employee deferral contribution by Dec. 31, though you can make qualified contributions until the tax-filing deadline. Contribution limits vary by type of retirement account and age.
You don’t have to wait until the last minute to do these things, however. Several CPAs we spoke with recommended reviewing taxes in October or November so there’s plenty of time to make adjustments and avoid any penalties. Tax preparation is really a year-long activity, and while that may not sound fun, it can make tax time less stressful.