With Tax Day fast approaching, the 27% of Americans who wait until April to file their returns have a lot of catching up to do. Taxes are complex under normal circumstances, and that’s only intensified when you add a time crunch to the mix. With that in mind, we’ve compiled a list of last-minute tax tips and reminders that will hopefully satisfy any questions that you have as well as keep you on task through mid-month.
These tips are the product of both WalletHub’s industry research and our conversations with numerous experts in the fields of individual taxation, tax law, household finance, business, negotiation, and consumer psychology over the past few weeks. Take this advice to heart and tax season will be a breeze. You can (ac)count on it!
Don’t Forget To…
- Watch Out for Scammers: Tax season has been known to attract a whole host of shady characters, from fraudsters who steal refunds to crooked tax preparers who convince you to cut corners or bend rules.“The number one cause of tax fraud is identity theft, which occurs when someone uses a taxpayer’s personal information—name, address, social security number, and other identifying information—to file a phony tax return for a refund,” Lee G. Knight, the Hylton Professor of Accountancy at Wake Forest University, told WalletHub. “Once identity theft is reported to the IRS, the victim may get his or her refund, but not before going through a lengthy process that requires the victim to file multiple affidavits and gives the IRS time to investigate the fraud. This process can take up to 180 days, and until the fraudster is caught, the victim must take steps to prevent further illegal use of their personal information.”There’s a host of strategies that one can employ to steer clear of identity theft and tax scam. You can check them out over at CardHub.
- Verify You Have All Requisite Paperwork: “First, get organized,” says Wayne Tanna, professor of tax law at Chaminade University. “Take care of the big things and little things will take care of themselves.” Indeed, organization is critical to a well-prepared tax return, so your first step should be to gather all of paperwork and other information you might need. This will likely include your Social Security number, W-2’s, a copy of your tax return from last year (for comparison), and bank account information. It’s also a good idea to go back through your mail to make sure you didn’t miss any forms as well as to verify that expected documents didn’t get sent to an old address.”Many people forget or neglect to report all of the income reflected on tax reporting forms they receive,” according to Linda Galler, a professor of tax law at Hofstra University. “Sometimes, this is inadvertent but more often, taxpayers mistakenly assume that they need not report small amounts. IRS computers will generate bills, which, if not promptly paid, could escalate into quite a nuisance..”
- Seek Free Advice: Having someone to bounce questions off of or even just an extra pair of eyeballs to check your work can help you avoid making mistakes, and work wonders for your stress levels. Just make sure to properly vet anyone you decide to work with. If currently you suffer of stress and need a fix immediately buy kratom powder which will help you control it. “There are many volunteer tax preparation groups organized as VITA (Volunteer Income Tax Assistance) sites. Many tax and accounting professionals, law students and business school students are trained and volunteer at these sites,” said Andrew Pike, director of the Law and Business Program at American University’s Washington College of Law. “Given the date, the lines are likely to be longish. Unfortunately, nothing can be done about that.”Free advice is especially important if your return is relatively simple. “If someone is preparing to file an ‘EZ’ return, they probably don’t have to pay someone (assuming the filer is good at following basic instructions),” added Bobby Dexter, professor at Chapman University’s Dale E. Fowler School of Law. “If a person’s financial profile is more complicated or they’re dealing with a special situation (e.g., filing part-year returns in two states after earning income in both after a move), then it might be best to get some assistance from a tax preparation professional.”
- Use Reliable Tax Software: “The benefit of tax software programs is that the programs instruct the taxpayer on how to fill out the tax forms, requesting the relevant information, and provide feedback that notifies you as to whether an error has been made,” said Wilton Hyman, professor at the New England School of Law. “The software also updates you as to when the forms have been completed and on your overall progress in completing your tax return.”
- Contribute to an IRA and/or HSA: IRA contributions – up to $5,500 for most people and $6,500 if you’re 50 or older – are both tax-deductible and tax-deferred. Just make sure to send the contribution by April 18 and notify the deposit institution that you want it counted for 2015 tax purposes.If you’re covered by a high-deductible health plan – characterized by a minimum deductible of $1,300 for individuals and $2,600 for families – you can deduct HSA contributions of up to $3,350 and $6,750 for individuals and families, respectively.“You will almost always end up wealthier in a tax-deferred retirement account and you will always end up wealthier in a Roth retirement account than if you invested in a taxable account,” said Greg Geisler, an associate professor of accounting at the University of Missouri – St. Louis.
- Use Your Losses: If you itemize your deductions, don’t forget to subtract realized capital losses, gambling losses, mortgage interest, and interest incurred on business loans and lines of credit throughout the year. All are deductible to varying extents.“One of the most common reasons why people overpay on their investment-related taxes is by failing to maximize the use of any capital losses they may have,” said Orly Mazur, an assistant professor of law at Southern Methodist University, noting that it’s generally wise to take losses in order to offset your tax basis on capital gains, and vice versa. “People also overpay on their investment-related taxes by unintentionally purchasing stock, selling it, and then re-purchasing it 30 days after the sale. This causes the ‘wash sale’ rules to apply which generally denies the taxpayer from claiming the loss.”
- Declare Foreign Accounts: People who have more than $10,000 in a foreign account are required to file a Foreign Bank Account Report with the Treasury Department by June 30 of each year or face stiff penalties.Tax evasion is such a big problem in the United States that many experts believe it warrants wholesale changes to our tax code. David G. Harris, director of the Bennett Center for Tax Research at Syracuse University, recommends replacing the income tax with a national sales tax because it would dramatically diminish collection and enforcement costs. “There is virtually no planning that anyone could do to avoid it,” he said. “If it were coupled with dispensing with currency, or currency denominated above $10, material evasion could be almost completely curtailed.”
- File a Gift Tax Return: You need to file a gift tax return “if you made gifts in 2014 in excess of the annual exclusion amount ($14,000 per donee),” said Kerry A. Ryan – associate professor of taxation at the Saint Louis University School of Law. “There is no extension to take advantage of the annual exclusion (i.e. you must make gifts prior to the end of the tax year).”
- Assume You’ll Be Audited: It’s never a good idea to cut corners, but doing so is especially problematic when it comes to filing your federal income tax return. Not only will it increase your likelihood of making an expensive mistake, but it could also bring IRS inspectors to your doorstep, threatening a variety of possible punishments for tax evasion.”Returns are generally selected for audit if there is something out of the ordinary on the return,” Galler said. “For example, a return will attract scrutiny if third-party income that has already been reported to the IRS by the payor is not reflected on the recipient’s return. If there are numerous math errors on the return, if the return is missing forms and schedules, or if the deductions that are taken on the return fall outside of statistically normal ranges, the IRS is likely to look more closely.”The IRS’ audit selection mechanism is becoming more and more complicated as well. “The IRS utilizes a system for its selection of tax returns for audit that integrates several artificial intelligence techniques,” said Brigitte W. Muehlmann, professor of accounting at Babson College. “That enables the IRS to recognize and detect patterns from very large and complex data fields.”This just goes to show how being thorough with your tax return and preparing for the worst can eliminate serious headaches down the line.
Time Management Tips
- Make a Plan: The whirlwind that is last-minute tax filing can easily cause a bit of paralysis by analysis. People have so much to do in such a limited timeframe that they become overburdened and waste time worrying, rather than acting. This tends to get worse the closer Tax Day becomes.In order to avoid such an inefficient mindset, it’s important that you make an itemized list of what needs to be done, which you can cross off as you go. Estimating the time it will take you to complete each task will help with the planning process as well, enabling you to schedule enough time to work on your return before it’s due.
- Don’t Sacrifice Itemized Deductions For Time’s Sake: Feeling rushed, you might be tempted to simply opt for the standard deduction rather than seeing what itemization would get you. It’s important to make an educated decision about which offers the most value in your particular situation.In particular, individuals should understand the differences between ‘above the line’ and ‘below the line’ deductions, according to Bruns. “Above the line deductions are more advantageous because they reduce taxable income – the tax calculation base – while below the line deductions allow taxpayers to realize a savings based on their marginal tax rate,” she says. “In addition, many individuals do not realize that certain items touted as deductions (charitable contributions) are in fact only deductible if the taxpayer is eligible to itemize on their return.”
- Keep Track of What Throws You Off: Over the course of a year, the anguish we suffer during Tax Season naturally fades in our memory. Since you don’t want to find yourself in the same tax predicaments year after year, it’s a good idea to make a list of issues that gave you trouble throughout the prep process and ideas for what to do better next year.“The best advice is to think of your tax preparation efforts as an ongoing, year-round effort, as opposed to waiting until the end of the year or until the spring season to begin planning for it,” Hyman says. “Taxpayers should be mindful of keeping receipts, documents and other tax-related forms in a secure, but convenient location so that they can keep tax-related papers, forms and other items together.”
- Adopt a Filing System: There is a direct correlation between one’s organization and the time it takes to complete their taxes. Keeping track of pay stubs, receipts, and any other information you’ll need when April 2017 rolls throughout the year not only makes tax prep much more efficient, but it also stands to mitigate high blood pressure and improve your overall Wallet Wellness.Your filing system can be as simple as five envelopes, according to Barbara Neuby, a professor of political science at Kennesaw State University – a large manila envelope and four standard white envelopes, dedicated to insurance receipts, medical, home/ auto body repairs and “other,” respectively. “When you have an important receipt, from a stock sale, an unreimbursed doctor visit, a significant car repair or a job related expense, put them in the correct envelope,” she says. “It’s not rocket science, but it requires a little effort. At tax time, you will make it a lot easier to locate those receipts that might have bearing on your taxes.”Another option, suggested by Jeffrey A. Cooper, professor of law at Quinnipiac University, is to “keep a file for the current year’s taxes” and “record information about tax-related items – such as charitable deductions, tax payments, medical expenses and business expenses – as they occur throughout the year.”
What to Do If You Can’t Pay
Not paying your taxes is not an option. As Benjamin Franklin once famously said, “In this world nothing can be said to be certain, except death and taxes.”
There are, however, a number of ways that people who are unable to fork over the dough they owe to Uncle Sam can minimize unnecessary complications as well as buy themselves some time to pay. You can check them out in our article about What to Do If You Can’t Pay Your Taxes.
Making The Most of Your Refund
- Relax: “If you know that you will get a refund as usual every year, relax… [Tax Day] is not a deadline for you,” said Ahmed M. Ebrahim, professor of accounting at Fairfield University. “If you are fine with receiving your refund cash late, you will be able to file any time after without even filing for extension.”
- Avoid Tax Refund Prepaid Cards: This isn’t really a tip for how to use this year’s tax refund, but rather how to receive it. Many tax preparers and some states offer to disburse tax refunds via prepaid card, but prepaid cards often charge a variety of small fees that can eat away at your money over time if you’re not careful. If possible, direct deposit is the way to go.
- Pay Off Debt: While no one wants to live with the increased cost and stress of unnecessary debt, far too many of us are dangerously overleveraged.“If you have more credit card debt than one month’s gross income, you are over-leveraged,” Neuby said. “Ask yourself why items that depreciate or have been entirely consumed have been obtained with borrowed money? One should never use credit cards to live on a day-to-day basis. If one is doing so, then one is in a crisis.”The most strategic way to pay off amounts owed is to attribute minimum payments to all but the balance with the highest interest rate, which you’ll put the remainder of your allotted monthly debt payment toward. Once your most expensive debt is gone, repeat the process until you’re debt free. Credit card companies are currently offering 0% introductory interest rates for as long as 21 months, which means the right balance transfer credit card could become quite the asset in your pursuit of debt freedom.
- Invest It: Whether it’s putting your money in an IRA to lower next year’s tax burden, adding to a 529 Savings Plan to help your child pay for college, or further diversifying your stock portfolio, there are plenty of sound investments to be made these days.“For those with a long-term investment outlook, a diversified portfolio of equity and debt securities with little turnover is likely to be a wise choice,” said Ron Christner, an associate professor with Loyola University. “Nobody can time the market.”You shouldn’t forget about of investing in yourself through things like continuing education classes either. In fact, you can do both. Invest your time learning more about money management, and then apply what you learn through a sound investing strategy. We could all stand to understand a variety of different aspects of personal finance a bit better, after all.“The average person has about 20% of the financial literacy they need to be self-sustainable and believes that their ‘wants’ are really essential items,” Neuby said. “People should educate themselves on banking and the global financial crisis because there is a crisis and it will hit the US very hard someday. We are getting closer to that day.”
- Reevaluate Withholdings: Receiving a refund isn’t always a good thing. In fact, it may indicate that you are overpaying and thereby sacrificing potential investment returns. How you approach this reality depends on how careful you wish to be in dealing with the IRS.“Personally, as a risk-averse accountant, I instruct my employer to withhold a little more in taxes during the year than I expect to owe so that I have a ‘cushion’ when I file my return,” said Kirsten A. Cook, a professor of accounting at Texas Tech University.”However, if a taxpayer receives a large tax refund, such a refund indicates that the taxpayer has made an interest-free loan to the government. Knowing this, the taxpayer may prefer to reduce paycheck withholdings and have that money available for consumption of goods and services during the year or invest that money in stocks or bonds that generate a return on the investment rather than allowing the government to use that money for free.”
Ask the Experts
The tips above are peppered with expert insights, but if you’re interested in additional guidance from tax professors and professionals, we’ve got that too. We posed the following questions to a panel of leading tax experts, and you can check out their bios and responses below.
- For people who are scrambling to finish their taxes at the last minute, what’s the most efficient way to go about it?
- Does one have to pay for reliable tax help, especially at the last minute?
- What are the biggest clerical mistakes that people make with regard to their taxes?
- Do you have any organization tips/strategies that people can try out next year?
- Should people really be happy about receiving a refund, considering that it means they overpaid in the first place?
- What’s the best way to avoid an audit?
Article Source: https://wallethub.com/edu/tax-tips/2932/