Tax season is fast approaching, with everyone’s employer due to send their W-2s by the end of January. Even though we’re still in the middle of the holiday season, it’s never too early to start getting ready to file your taxes.
It’s helpful to be mindful of your taxes throughout the year, which will help you stay organized and avoid scrambling every year when tax season rolls around. Here are 10 ways to get a jump start on your taxes now, or anytime of year:
Figure out which forms you’ll need
Since everyone’s financial situation is different, there are many different tax forms that suit these different situations. If you’re unsure which tax form to use, visit the IRS’s website or consult a professional.
Keep all receipts in the same place
If you’re someone who itemizes deductions instead of standard ones, you you already know how important it is to store all of your receipts together in the same place. If you lose any, it could cost you. Sort and store them throughout the year to avoid a last-minute scramble.
Store all tax returns together
Since we often have to reference the previous year’s return when preparing the current one, it’s a good idea to make sure you store them all in the same place, whether it’s a desk drawer, filing cabinet, or even a shoebox under your bed.
Consider filing an extension
It might seem counterintuitive to suggest an extension in a list about being prepared. However, if you file an extension and wait until later in the year, accountants will be less busy and you’ll end up filing in less time. This is also helpful for anyone experiencing any kind of stressful life event, such as those who were involved in any of the hurricanes in Texas, Florida, or Puerto Rico this year.
Review/revise your W-4
If you’ve experienced any life changes from the previous year (adding or losing any family members), ask your employer if you can review your W-4. The IRS actually recommends doing this every year.
Do your research
Are you going to prepare your taxes yourself, or are you going to hire an accountant or tax-preparation service? If you plan to do them on your own, make sure you educate yourself about the deductions you’re entitled to. If you plan to hire someone, check around and make sure they’re reputable.
Save your money
Unless you fill out the 1040EZ form and mail it in yourself, it’s going to cost you money to file your taxes. Some people are happy to pay this to ensure that they’ve done it correctly. You may also still owe taxes in addition to what you’ve already paid in. If you’ve saved for it, it shouldn’t be a problem.
Check your deductions
If you’ve had any major life events this year (bought a house, gotten married, had a child, etc.) you may be entitled to some sizable deductions. It’s a good idea to research all possible deductions to avoid overpaying your taxes.
Choose between itemized and standard deductions
Depending on what type of work you do and your financial situation, you may need to do itemized deductions, where you get credits for everything you’ve spent, rather than taking the standard deduction as dictated by your filing status. If you need to know more, consult a professional.
Track all charitable donations
Charitable donations are tax deductible, so if you have any monthly or one-off donations, make sure to keep track so that you can deduct these expenses from your taxes.
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.
If you’re expecting a big tax refund this year, you’ve probably already decided what you’re going to do with that money. Whether it’s a vacation, a new jet ski or a nice boost to your retirement savings, you’re probably pretty excited about the extra cash. But here’s the deal: Getting a big tax refund each year isn’t necessarily a good thing. It means you haven’t been putting that money to work for you all year long.
“If you are receiving a refund this year, it means that you overpaid your taxes during the course of the year. Instead of giving the government your hard-earned money, think about all of the great things you could have done with that money,” says Ron Weber, a senior marketing manager with Quicken Inc. “You could have paid off credit accounts, invested it in your future, and/or spent it as you earned it. Money is always better in your pocket than in someone else’s — even if that someone else is the government.”
Here’s how you can make sure you boost your bottom line this year by not overpaying your taxes and also not getting a refund.
Review Your Withholdings
Sit down and review your paycheck withholdings and see if you can break even when it comes to the taxes you pay. You’re looking for your Goldilocks zone. Not too little, not too much, but just right.
“If you are unsure what to do, experiment until you get it right,” Weber advises. “Most people are unaware that you can change your number of payroll exemptions as many times as you wish.”
You can also try using a tool to help you find your Goldilocks zone. The Internal Revenue Service has a withholdings calculator that can help you see how much difference a change in your withholdings will make. Certainly, you don’t want to owe taxes next year if you can avoid it, but getting your tax refund as close to zero as possible means you can invest or spend the additional income on a regular basis instead of letting the Treasury Department store it for you.
As you review your withholdings, you’ll want to be sure you …
Don’t Forget Your House …
If you own your own home, you probably know you can claim mortgage interest and property tax deductions, so take into account how much that will reduce your tax burden.
… Or Your Investments
If you own investment property, you’ll also want to consider any expenses you can deduct that might affect your taxes for next year.
… Or Big Life Events
“There are certain life events that you want to keep in mind when changing your exemptions such as marriage, having children or any situation where you decrease the number of dependents, such as divorce,” Weber says. “Also, keep in mind that while you are able to change the number of withholdings as often as you wish, your employer doesn’t have to apply it until the first payroll ending 30 days after you submit the change, effectively limiting the number of times you actually can change. Other than these considerations, the ultimate goal each year is to get your refund close to zero. Make it a game and see how close you can come.”
But You’re Terrible at Saving Money, You Say?
Of course, if saving isn’t your forte and you’re going to just end up spending whatever additional income you get throughout the year, letting Uncle Sam hold it for you might not be such a bad idea if you plan to put your refund directly into a retirement account like an IRA. The IRS will even help you keep your promise to invest the money by direct depositing all or part of your refund into savings, an IRA or even toward buying savings bonds.
If that’s your situation, you can read our guide on how to maximize your tax refund. But investing that money into a 401K throughout the year could be a better alternative, especially if your employer provides matching funds.
Also remember that keeping your credit in good standing helps you save money throughout the year, on everything from loan and credit card interest rates to mortgages. A good way to check on how your credit is faring is by getting credit your two free credit scores, updated every 14 days, on Credit.com.
You finally did it. You filed your taxes and now need only await your return, to be spent on a new TV or stocked away in an IRA or whatever you want — it’s your money again, and not Uncle Sam’s.
Unfortunately, it’s possible for this state of reverie to be interrupted by something called the 1099-C — a form taxpayers receive when a creditor cancels a debt worth more than $600.
So if, for example, you have a student loan forgiven and the forgiven amount is more than $600, that counts as additional taxable income and you should expect a 1099-C in the mail. Or, if you renegotiate with a credit card company to pay less than you owe, and the difference is more than $600, expect a 1099-C. The form itself will give the specific reason in Box 6 via a code that you can look up on the IRS website.
No matter the exact reason, just know that, while it’s great to get rid of debt, it can still have consequences come tax time. Canceling a debt may also affect your credit score. Keep up with yours using Credit.com’s free credit report summary, which provides your two free credit scores, updated every two weeks.
Once you know why the 1099-C is in your mailbox, what do you do with it? The 1099-C might seem like just another form to plug into your tax software or give to your accountant. The problem is, the time the 1099-C arrives can vary, and the form may arrive after you’ve already filed your taxes, said Lisa Greene-Lewis, a CPA and tax expert for TurboTax.
Regardless of when the 1099-C arrives, if the debt was canceled in 2016, you have to include it with that year’s return, Greene-Lewis said. Here’s what you can do if you’ve already filed.
Amending Your Return
In some cases, you may not have to do anything. Your creditor should have filled out a 1099-C and sent it to the IRS when they forgave the debt.
The IRS may do an adjustment on your return automatically and send a notice asking if you agree. If not, you’ll have to amend your return, Greene-Lewis said.
Tax software like TurboTax can guide you through the process; otherwise, you’d file a form called a 1040X and include the information in the 1099-C.
You don’t have to report forgiven debt as income in a few cases. If a debt was discharged because of bankruptcy, you don’t have to pay tax on it. Same if you’re considered insolvent, Greene-Lewis said.
Also, if you had debt on a mortgage discharged in 2016, you don’t have to include it in your taxable income, thanks to the Mortgage Debt Relief Act’s extension through last year, Greene-Lewis said.
Will This Hurt My Return?
It depends on how much debt was discharged. If it was enough to bump you up to a higher tax bracket, then yes, a 1099-C could shrink your return, Greene-Lewis said.
In addition, you’ll likely pay a penalty if you file the amendment after April 15, even if the 1099-C showed up after the deadline.
It’s rare, but Greene-Lewis said she’s heard of 1099-C forms showing up after the filing deadline. You can include an explanation as to why you’re filing late on the amendment, but it’s not always enough to avoid the wrath of the Internal Revenue Service.
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.