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7 Things You Should Know Going into Tax Season
Stressed out by tax season? We promise you’re not alone. Stressing about taxes is practically a national pastime, but it doesn’t have to be this way. The key to getting through the paperwork is acknowledging what you’re capable of doing yourself versus what you need help with. Taking the ego out of it will help you calm down and avoid mistakes. Think of it as a great opportunity to practice stress management!
Your Filing Status Matters
In fact, your filing status might be one of the most important things to correctly document. It will determine how much you pay—and how much you save—once the rest of the calculations are complete.
Getting audited is a nightmare for most people (especially if you’re disorganized) and one of the most common ways to induce an audit is to make a mistake when reporting your filing status. They use your filing status to determine your eligibility for credits and deductions, and if you have applied for these while listing an inappropriate filing status, the tax man will come knocking.
File Electronically
In the 21st century there’s almost no excuse to file a paper return. While there are exceptions to every rule, choosing to file a paper return will only make the process more difficult. Tax software makes it easy for everybody involved; the IRS can process your return more efficiently, the guidance offered by the software reduces the room for error, and if you’re owed a refund you will receive it much faster.
Don’t Lie
Obvious? You would think so, but every year countless people try to slip between the cracks, crossing their fingers and hoping that their little fib goes unnoticed. Do you know what the IRS penalty for claiming dependent is when in fact you’re not? You might not, but the government certainly does.
Take Advantage of Exemptions
There are several ways to qualify, but some of the most common are for married couples, those who contribute to society in some way, and those who have children. If you’re not sure what exemptions are, think of them as discounts. If appropriately claimed, they can knock huge amounts off of your final tax bill.
While it’s hard to claim your summer camping trip as worthy of a tax exemption, there are many ways you can frame your yearly expenditures so that they can qualify for a discount.
Extensions
During the flurry of tax season, many people feel overwhelmed and consider filing for extensions. Those people are in luck. It’s possible to get an extension on your paperwork. The IRS, for all their strictness, can be understanding. However, if you’re looking to get an extension on your payment, you’re out of luck. That deadline is set, and if you fail to meet it there are penalties.
If you can’t pay on time, there are a couple of options available to you. Most people try to resolve this issue by taking out a loan. While it’s not a terrible idea, it costs you more in the long run than paying your taxes straight up, and if you can’t pay back the loan then you’ve put yourself into another world of trouble. We recommend that you don’t panic, be responsible, and consider your options before making any rash decisions.
Be sure to investigate an IRS payment plan if it’s simply the lumpsum that you cannot afford to pay.
Make Sure You File
Even if you’ve been working a side hustle and still can’t make the payment, make sure that you file your return anyway. The IRS can hit you with multiple penalties and you want to make sure that you’ve done all you can to keep them to a minimum. Failure to file anything at all, even in cases where you can’t pay, will only make the situation worse.
Avoid Rapid Refunds
Rapid refunds are essentially loans. They come with an interest rate, and will actually reduce the amount you receive in your refund. While they may be tempting, only accept one if you’re absolutely strapped for cash. If you find yourself constantly strapped for cash, consider a budget management tool that helps manage your finances throughout the year.
Don’t dread tax season. Take a deep breath, rise to the challenge, and work your way through carefully and judiciously. Good luck!
