The beginning of a new year brings about resolutions, changes and tax time. ¬†Although your tax return isn’t “due” until April 15, there are things you can do now to prepare. ¬†Whether this is your first year or you have been doing this for years, here are some easy ways to be prepared to file that return.
DIY or Tax Professional?
Many people feel comfortable enough with the tax laws and changes each year to file their return without assistance. ¬†There are numerous ways to prepare your return yourself, online or using paper, free or fee-based. Military bases around the country offer tax services and many of the local tax franchises also offer free or reduced filing for military members.
- IRS.gov: ¬†eFile options, free tax prep help and where to mail paper returns
- MilitaryOneSource: ¬†The Military OneSource no-cost online tax preparation and filing service launches January 13, 2015.
- TurboTax: ¬†Offering free and discounted rates for the military
Tax professionals can be costly, but if you have complicated or unusual tax situations or own a business, a tax professional (CPA) can save you a lot of money and time in the long run. While these services can be a significant upfront cost, you are able to claim the cost of using a service on your next year’s return. ¬†Many may also include in their services representation during an audit and a reduced or free amended return if needed. ¬†If you believe you will need these services, now is the time to start asking for recommendations and interviewing potential service providers. ¬†They are already scheduling appointments, so do not wait too long.
Just the facts.
Start gathering your paperwork and create a file just for these papers so you can grab it for your appointment or when you are ready to file.
- Income – make a list of all the places that will be sending you a tax form (W-2, 1099, 1098, etc). Check your returns from the last 3 years to get a good idea of where previous sources of income came from and then be sure all of those places have your current mailing address. Most accounts will offer this electronically, so be sure to watch your online accounts (bank, mortgage, car loan, education provider, investment portfolio) to see if an electronic copy is available if you don’t have one via mail. ¬†These types of tax documents are to be mailed no later than the 31st of January. ¬†All income must be reported, even if you do not receive a tax form for it, so be sure you have the information needed to report all income. ¬†Be sure to carefully review your service member’s W-2 and ensure that all income is reported correctly and that your taxes were withheld properly.
- Small business owners – do you need to provide a 1099-MISC for anyone you paid in 2014? ¬†If you are unsure of whether or not you need to provide one, this PUB¬†helps guide you. ¬†Gather the information you will need for home office expenses, automobile expenses, advertising, travel and other business expenses. ¬†Review your prior year’s return to see what you claimed last year and what needs to be changed this year.
- Proof of health care coverage – Be sure to have proof of coverage for yourself and family members, along with income¬†of all members of the household in order to compute the health care credit or penalty.
- Change in filing status (marriage, divorce) and dependents (birth or death) -¬†Be sure you have all names and social security numbers updated and available for filing.
- Tax Credits – Which tax credits will you be eligible for? ¬†If you are going to use them, be sure to have the documentation to provide. Child and Dependent Care Credit will require the EIN or SSN of the provider along with the total amount paid for 2014.
- Deductions – Charitable contributions, donations, and other deductions can be easily missed. ¬†Check prior year returns for deductions you have made in the past, go over your bank and credit card statements for any deductible expenses.
- Medical expenses – If your family typically spends a large amount on out-of-pocket medical expenses that have not been reimbursed, you may find significant tax savings by itemizing your deductions and including those expenses. Any medical procedure – including surgery, doctor visits, tests, and therapy – that is medically necessary for restoration of health is tax deductible. Anything cosmetic, uncommon, or voluntary is generally not.
Do I need an extension?
If you are unable to secure an appointment or have been unable to finish gathering everything to complete your tax filing, you may want to consider filing an extension. The important thing to note here is that¬†an extension of time to file is not an extension of time to pay. ¬†If you are using a tax professional, they can prepare and file an extension for you. If you wish to do this yourself, you can file online or fill out a paper form and mail. ¬†You must include payment for your estimated tax due (if any) at the time of filing.
I’m being audited…HELP!
This is probably one thing most taxpayers fear most. ¬†We dread preparing our taxes, but fear an audit. Don’t panic though, an “audit” can be as simple as being notified there was a miscalculation on your taxes, a request for additional information, or a complete audit. If you receive a notice, do not ignore it. Contact the IRS for more information (if needed) and to find out exactly what they are looking for or what you need to do, however do not give information over the phone, just gather the facts if the notice is not clear.
The IRS uses correspondence audits to take care of the most common tax return problems, such as missing forms and schedules, illegible entries and mathematical errors. This can easily be handled yourself by mailing back the requested information.
In a field audit, the examiner visits your home or business to verify the information on your tax return. You may want to consult a tax professional for additional information on how to prepare for a field audit.
In an office audit, you go to an examiner’s office. The examiner requires you or your representative — such as your tax preparer or lawyer — to bring documentation and information such as receipts, account statements or pay stubs. ¬†A tax professional is highly recommended in this instance, as they are versed in tax laws and are not emotionally invested in the outcome.
Keep those records
Except in the case of fraud, the IRS must audit your return within three years from the due date of the return or the date of filing, whichever is later. ¬†Keep the returns you filed, proof of tax payments and anything to do with property for as long as possible. ¬†TurboTax keeps all returns, forms and schedules electronically for you in your account and provides you with the ability to review or download them at any time. ¬†If you use a tax preparer or other ways to file, you can scan the documents from prior years to keep an electronic copy. Just be sure you keep those backed up somewhere safe.