1. Gather income records By the middle of February, you should have received all the forms documenting last year’s income, including W2s and 1099s from your employers and clients, as well as 1099-INT forms from banks documenting interest earned on your accounts (you need to report interest even if it’s just $10). If you received any unemployment checks last year, you must document that income as well, so keep an eye out for a 1099G from the federal government.
- If you are missing any forms, keep in mind that it’s your responsibility to retrieve them. You usually can access account interest forms (1099-INT) through the bank’s website.
2. Collect receipts and decide if you can itemize. Although filling out a 1040EZ tax form is simple, you’ll often come out ahead if you can deduct expenses that add up to more than the standard deductions ($5,800 if you’re single; $11,600 for married couples filing jointly). Some examples of typically deductible expenses are mortgage interest, charitable donations, unreimbursed work expenses, real estate taxes, health care premiums if you’re self-employed and medical expenses that exceed 7.5 percent of your adjusted gross income. To see a more complete list of potentially deductible expenses and learn what applies to you, search irs.gov for “Schedule A.”
- Large deductions are a red flag to the Internal Revenue Service. Make sure you have receipts to document all of the expenses you plan to deduct.
3. Be tech-savvy. Nobody said tax filing was easy. Limit mistakes by using a software program such as TurboTax to do the calculations and guide you through the process. The software also reminds you of credits and deductions you might not think of. Keep in mind that although you can use the software free of charge, using it to e-file your return costs from $30 to $100 for both federal and state returns, depending on the complexity of your situation.
- Save on the cost of e-filing by using your calculations from TurboTax to fillout paper tax forms (available free at post offices and public libraries and at irs.gov) and file them by registered mail. If you owe money, this move can buy you an extra couple of days before your check is cashed.
4.Call in the big guns. If your returns will be complicated (you are self-employed, for instance, or own a rental property), you should call a professional so you don’t pay more than you need to. You can spend as little as $50 at a store front tax service, like H&R Block, or hire an accountant—which might cost more than $200, depending on your return’s level of complication. The outlay can pay for itself in the savings a pro can help you find.
- If you itemize, any fee you pay toward doing your taxes may be deductible on next year’s return.
5. File an extension. Need more time to figure out your credits and deductions? You can put in a request that gives you six more months to hand in your return. The extension doesn’t apply to the tax money you owe, however, so you need to estimate how much you think you owe and send that amount to the IRS along with the extension paperwork (form 4868 at irs.gov). If the payment you send falls short of what you really owe, you have to pay penalties and interest, which continues to accrue until you settle the debt.
- As long as you owe less than$25,000, you can automatically set up a payment plan at irs.gov. If you owe more than that, speak with an agent in person to work out an arrangement you can afford.