It’s that time again…
Instead of your mailbox being bombarded with holiday cards and presents, Uncle Sam has been dropping by in the form of W2′s and more versions of 1099′s than you thought could possibly exist. Yes, it’s tax season: you dread it, can’t stand it, and are seriously coming down with tax fever. And, no, in this case it can’t be cured with shopping, but thanks to our five tips it can be easily managed.
1. Turbo Tax — because you CAN.
Okay, we not everyone enjoyed sitting in the front row of their tax class. Heck, most people probably didn’t know that class existed. Whether you did or didn’t, it’s neither here nor there, because for April 15th purposes Turbo Tax is all you need. Like JLo’s love if you’re single (like she is these days) and not claiming any dependents, filing your federal taxes (1040EZ) don’t cost a thing. You have to pay a small fee for filing your state taxes, but it’s well worth it, especially since free e-file is included. With it’s step-by-step process and easy access to support you can’t get stuck. Spend the time to get familiar with the software this year and go into next year’s tax season feeling confident and ready to conquer.
2. Get organized.
As your tax forms pile in the mail or become accessible online start saving them to a file on your computer. Remember, if you have a savings or checking account that didn’t bear more than $10, a form might not have been generated (always check with your banking institution if you’re not sure). Unless you’ve opened a new bank account, retirement vehicle, or stock account you should have the same forms as last year. Using your prior year tax return serves as a great benchmark.
New to filing? Make a list of all jobs, bank accounts, stocks traded/held (1099-INT forms), properties, and anything you make payments on (mortgage, student loans, extensive doctors bills, etc.). If you still feel like something’s missing call H&R Block or use Turbo Tax’s free live tax advice to go over these forms and have them ask you a couple of questions to determine if you’re including everything. Use this list every year and update it as you open new bank accounts, etc. so that by the time April 15th rolls around you’re already ahead of the game!
3. Something good can come from student loans.
Yes, it makes us as sick to our stomachs as paying full-price for a pair of jeans to think that something good can come from all those payments to Aunt Sallie Mae, but there really is a plus. If you’re paying down student loans, you’re usually paying off interest which is tax deductible. Excuse me? Tax deductible is a fancy way of saying it helps reduce the amount of money that Uncle Sam takes a percentage of. So, the less money you claim the less money in taxes you pay. Kind of nice, right? Remember: reducing your tax liability is a good thing.
4. To itemize or not to itemize.
That is the question. Here is the answer: don’t. Unless you own multiple properties, contribute a large chunk of change to charities, and/or have medical expenses that exceed 7.5% of your AGI (Adjust Gross Income), go standard and don’t look back.
Don’t get in a tizzy, AGI isn’t a bad thing. It’s simply your annual income less applicable expenses — just another way to reduce your taxable income! For example, your 401k or IRA contributions are not included in your AGI.
5. There’s power in numbers.
They say two heads are better than one. And we always love an excuse to throw a party. Gather your gal pals and set out a block of time to do your taxes. Call each other if you have questions and help each other out. Agree on a date and time to be finished — hey, maybe even set up a Facebook invite — then break open the bubbly, dance to your favorite tunes, and scheme of all the ways you’re going to spend — err, we mean save — that reimbursement check.
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If you itemize (see if your eemiiztd deductions on 1040, Schedule A exceed your standard deduction, which is $10,700 for married filing joint, $7850 for head of household, $5350 for single or married filing separate in ’07), you may deduct EITHER state and local income taxes OR your state and local general sales taxes. You cannot deduct both. You make your election on line 5 of Schedule A by checking box a for income taxes or box b for general sales taxes. The option to claim sales taxes instead of income taxes will not be allowed following 2007 unless Congress extends the law permitting this option.
A good tax preparer can be worth their eiwght in gold. Software is excellent about making calculations but even today’s excellent software won’t be able to tell you if you have a legitimate deduction. You could assume something is deductible when it’s not. Worse yet, you may not know about deductions that you should be taking. There are complex tax law issues such as depreciation that affect many small business owners. Your return is complicated by your move and starting a business.Here’s the thing. You are an expert in your business. There’s probably a reason why your customers come to you and don’t try to do it themselves (whatever your business is!). A tax preparer is an expert in taxes. That expert could save money for your business. If you were being sued, would you try to represent yourself in court? If you needed major surgery, would you try to operate on yourself? I would hope not. But tax preparers have specialized training just like a lawyer or a doctor (but maybe not as long).If your tax preparer saved your even $50, would it be worth it to you?