With population of around 320 millions as of 2014, give or take few millions, there are around 140 millions tax payers in United States. As tax season draws near the end, many people are scrambling to meet the April 15th deadline. Here are few tips that might help those who are filing their income tax returns.
1. Use electronic filing. As human, we all make mistakes, but the last thing you want is make a mistake with the IRS by leaving out a 0 somewhere on the form. Also some peoples' hand writings can be categorized as "chicken feet" writing style. I see it all the time, with the zero looking like a six or nine, vice versa. Therefore, tax filing software is the way to go. Most tax filing software are made very user friendly and detect most commonly made mistakes. One of the neatest thing is that you can import all the data from your brokerage and banks so you don't have to manually enter in each stock trade you made in the year. Imagine trying to entering in 50 trades of different stocks and mutual funds you bought and sold in the previous year and trying to balance it out the short term loss/gain vs long term loss/gain, nightmare! By using electronic tax filing software and filled out everything, it will conduct a pre-audit to run the numbers again and give you a risk assessment on the chances you will be audited by IRS. Some of the software even provide third party legal representation from tax attorneys if you do get audited, for a small fee.
2. Filing can be free! According to the latest IRS rules, if you make under $58,000, you can file your federal tax for free! More details can be found here - http://apps.irs.gov/app/freeFile/jsp/index.jsp?ck. Keep in mind that's only the federal income tax, most of the time, you will need to pay extra for filing state income tax for those of you that live in states that require filing. Currently there are only 7 states that do not require their residents to file for income tax. They are:
- South Dakota
If you are using a tax filing software, it can be as easy as click of a button to migrate all the data from the federal income tax and then file it electronically or print-mail in the state income tax return as some states requires.
3. Keep good records. Does not matter how good the software you using, garbage in, garbage out. Therefore it's important that you keep a good record of everything you spent so you won't be pulling out our hairs trying to remember all the data needed. Records such as tax deductible business expenses, school/professional training related such as tuition/books. If you own a rental home, you need to keep all the paper work such as your mortgage bank sent you in regard to the taxes/mortgage interests you have paid for the year, keep receipts of record of improvements to the property, advertising expenses, and utilities bills. Another major advantage is that if god forbids that you do get audited, all the previous return as far back as three years might get audited as well, so a good record keeping system is definitely a must.
4. File as early as you can. Maybe this tip won't help you out this year, but please keep it in mind for your future filings. I can't stress enough on the importance of this. Many people like to procrastinate until the last minute. I can understand especially if you know that you will be owing money to Uncle Sam, but there's no way around this yearly event, as one of our founding fathers, Benjamin Franklin used to say, "The only things certain in life are death and taxes" One thing many people don't know is that you can file the tax as early as in January and don't have to pay the taxes owed until the cutoff deadline in April. If you file early, you can have a pretty good idea how much money you need to save or move around from other accounts so you won't have to rely on your credit card to pay your taxes at the last minute. And for those of you that know that you will be getting a tax refund check from the IRS, there's no good reason to wait till the last minute. You are in essence giving the government an interest free loan by not filing early to get your tax refund back.
So hopefully these few tips can help you. if you have questions, please don't hesitate to comment below/email the teenanalyst team. Good luck and happy filing!