13 Secrets Your IRS Agent Won’t Tell You About Tax Planning
Tax planning made easy: Follow these tax advisors’ tips for income tax help and stress-free filing.
You may be eligible for free tax software
If you earn less than $57,000 annually, many major tax program companies will provide services for free. You can view a list of them here. Even if you don’t qualify for the program you want, everyone is eligible to use the IRS’ online forms, which cuts down on paperwork, if not costs.
Rewards may be taxable
Did you get any rewards this year? You may have gotten them and not be aware that they might be counted as income and therefore could be taxed. An obvious example: When Oprah Winfrey gave her entire studio audience cars back in 2004, the lucky individuals had to pay taxes of up to $7,000 since the value of the vehicles was counted as income. The same principle applies to rewards you may have gotten, say, from your credit card companies—frequent flier miles, for example—though you’re in the clear with bonuses that are specifically tied to purchases. It’s good to keep track of these over the year to avoid surprises.
Follow three easy steps for a quick refund
The classic tip given by experts is to file as early as possible for a fast refund, but it also helps to use direct deposit rather than snail mail. You can speed up the process even more by filing online: According to Money Crashers, e-filing companies report getting refunds back to customers in less than two weeks. This is what tax experts wish you knew about the new tax law.
That said, refunds aren’t as exciting as they seem
When you receive a check from the government, you’re getting money back that was yours to begin with—which has effectively been given as an interest-free loan to the government. Some argue that it’s better to receive more money month-to-month than one lump sum via your refund. When you do receive your refund check, consider investing it for a long-term goal rather than splurging all at once. Check out some of the craziest tax deductions ever claimed.
File even if you can’t pay
While both failure-to-file and failure-to-pay penalties exist, the first is generally worse than the second. Don’t panic if you can’t pay what you owe to the IRS. You’ll have to fill out some forms and provide documentation, but you can compromise with the IRS on a lower amount if you meet certain requirements.
Filing late can hurt your credit score – eventually
The act of filing late in itself won’t hurt your credit rating, but it could lead to penalties that will ratchet up what you owe to the government. If you don’t pay that debt, the IRS may file a federal tax lien—a public, legal claim against your property that can impact your ability to get credit. Find out how the government really spends your tax dollars.
Itemization can mean a bigger return
This requires some work on your part, but it might be worth it. You can go with the standard deduction on your tax form, but if you’ve kept good records throughout the year on things like non-reimbursed job-related expenses and donations, you may be entitled to a larger return, says U.S. News. It all depends on if your itemized deductions are larger than the standard deduction.
You’ll want to be careful when itemizing, however, as too many deductions may increase your chances of being audited. For example, the IRS might take a closer look if you made charitable donations that seem disproportionate to your income. Don’t make the IRS wonder how you covered your basic needs because of how generous you were!
You may not be able to avoid an audit, but you can try
According to Money Talks News, the government audits thousands of people at random every year. Still, you can cut down on your chances by diligently filling out your forms and generally being careful—even something as simple as forgetting to sign your return can make it stick out. Don’t use round numbers, as the IRS may assume you’re guessing on expenditures, and attach a type-written note to explain anything that could raise a red flag, like large deductions. These are the 11 tax-related documents you should never throw away.
Even part-time self-employment counts
Your weekend side projects might count as self-employment, which means you’ll have to make quarterly payments in addition to filing your annual return. Always double-check your responsibilities before filing. Don’t forget that you can write off expenses related to a home office, though.
Get a receipt for charitable donations
If you’re giving $250 or more to a charity you love, make sure you get a written statement indicating the amount you contributed. The receipt must also describe any goods or services the charity gave you in exchange for the gift, along with an estimate of how much those goods are worth. Here are more tax deductions you can’t afford to miss.