It’s just around the corner… April 15th. To some, that day is more dreaded than Halloween or Friday the 13th combined. If you’re like thousands of people, you realize that you have just a few days left until the IRS (and many state agencies) are expecting you to submit your annual tax returns. And whether you’re doing it for yourself as an individual, a company that you own, or both, you may be worrying yourself sick about some of the details and ALL THOSE RULES.
I’ve filed my own taxes for the past few years, and while I can’t say that I’m an expert, my experience plus Turbo Tax helps to get me through each tax season. Here’s how I do it… maybe it will help you too.
1. Make a Plan
They say if you don’t have a destination, you’ll never get there. And it’s true. If you don’t have a plan in place, and an idea on what you want to end up with, you’ll just sort of meander about and stress out at the end. So make a plan. Maybe it’ll be based on last year’s figures. Estimate your upcoming annual income, how many dependents you’ll claim, whether you’ll use itemized or standard deductions, any tax credits you’re expecting, how much tax you’ll owe based on that, and how much you plan to withhold through your regular paychecks. Use that as a roadmap to guide what you do throughout the year. Not planning to itemize deductions? Then don’t bother saving receipts. Withholding way more taxes than you expect to owe so you can get a huge refund? Then don’t worry about filing by April 15th.
Make your plan and just follow the steps through the year.
2. Compile Data
Through the year, I collect and file all important financial documents and put it into a single file folder labelled “Tax Docs” with the year in question. While most come at the beginning of the following year (W-2’s, 1099’s, 1098’s, etc), some things are provided through the year (Goodwill donations, etc). Keep it all. You don’t need to file every single receipt, but anything you expect to claim and take a deduction on, SAVE.
3. Estimate Taxes
At some point, close to the end of the year, put your information to paper and do a practice tax filing. If you’re not familiar with it, or don’t want to make a major mistake, use a tax software program like TurboTax to help guide you. It will catch minor mistakes like math errors or skipping commonly used fields that you may qualify for (like Earned Income Tax Credits). Also try to get a friend or professional to look over your estimate, but don’t just take their advice when it comes to the taxes. If they make an error that benefits you (like claiming too much tax credits or taking too many tax deductions), you will be found liable, and claiming ignorance is never an acceptable defense to the IRS.
4. Ask Questions
If something sounds too good to be true, it usually is. This advice has never been more important than when you file your taxes. Many people get caught up in boosting their refund to ridiculous levels, claiming 12 kids that they don’t have or taking business write-offs for birthday presents or trips to Vegas with the girls. If you’re not sure where the money is coming from, ask. Even if it’s in your favor. ESPECIALLY if it’s in your favor. The IRS will catch it, sooner or later, and it will not be pretty.
It’s almost always better to file than not to file. Especially if you owe money and can’t pay. So take those final steps and actual submit your taxes. You can always ask the IRS to work out a payment plan. Heck, they may even find out that you owe LESS money than you thought and correct your return for you. At the very least, you can always file an amended return. But just file. It may cost you money, but it’s the right thing to do.
I personally try to file between February 15 and March 15. That gives me enough time AFTER the end of the year to make sure that I get all the paperwork I’m looking for (remember, I made my plan at the beginning of and throughout the year so I actually have a tangible list of documents I’m waiting to receive). It also gives me enough time to usually get a response from the IRS or State if there are discrepancies with my taxes to fix it before April 15th so I don’t incur any penalties or interest on money owed that I under-calculated.
In any case, be very glad you live in 2015 and not 1995… the tax code may be more cumbersome, but thanks to the internet and tax software, getting your taxes done has never been easier. Good luck, and happy refund season!