Wednesday, December 24, 2014
Tax. Few three-letter words strike so much fear into so many hearts. But it doesn’t have to be this way. The truth is, the only people who should be stressing out at this time of year are the ill-prepared and the fundamentally dishonest. Assuming the latter are beyond help, let’s take a look at how to help the former improve their approach to filing taxes. With the right preparation and attitude, filing your return in a timely and accurate manner won’t be the ordeal you imagine.
The first thing to be aware of before filing your tax return is your Social Security number. If you file jointly, you need both yours and your spouses number, and if you have any dependents you’ll need ID numbers for them too. If you miss any of these crucial numbers the IRS might delay the process – including any tax refunds or credits owed to you.
Next, you need to know what income information you have to provide. By January 31st (the earliest date the IRS is accepting returns this tax year), you should receive a W-2 form from your employer or employers. This will show how much you earned, how much was taxable, and what taxes were withheld. If you’re an independent contractor, the company you work for should send you a 1099-MISC form showing your gross earnings. Track down all receipts and documentation for business-related expenses, including mileage records, public transport tickets, and utility bills if any work is done at home.
It’s not all about wages. The IRS also taxes interest earned on savings for college funds, property or retirement. Be sure to get statements from each account.
Once you have all the documentation in place, it’s time to figure out where you can trim taxable income. Home-related expenses are generally a good place to start. The interest you pay on your mortgage is tax deductible. Your lender should send you a Form 1098 with the relevant amount. If you made any extra mortgage payments last year, make sure the added interest payment is taken into account. If you have a vacation home or other secondary residence, a separate Form 1098 is required.
Do you patronize a charitable organization? If you have donated more than $250, you’ll need a formal receipt in order to obtain a tax refund. You can also get tax breaks for volunteering your time, with 14 cents in every mile you drove in aid of the group tax deductible. Be sure to keep track of the miles you drove.
Getting organized earlier gives you more time to file properly, which will save you time, anxiety, and money. So why wait? Get started by gathering all your documentation before the year is out and you’ll ease the pressure come January 31st.