Tax-time tips in the final stretch of the tax season
The April 17 tax filing deadline is quickly approaching. While many are excited about the possibility of a tax refund, nearly 1 in 3 taxpayers waits until April to file their return. Whether filing online or meeting with a tax professional, H&R Block shares three tips to help make the final stretch of the tax season less daunting.
1. Get organized
Keeping good records is the foundation for everything else because you can’t deduct what you haven’t documented. Take the time to complete a paper chase and find all tax and financial documents and related information needed to file a tax return. It may be easier to use a customized tax preparation checklist to help you make sure you aren’t missing important documents. Missing tax documents can lead to missing out on tax benefits you are entitled to claim.
Consider starting with your previous year tax return, then track all income and receipts, and finally document each. After that, separate business-only bank accounts and credit cards to make it easier to keep good records and file accurate tax returns. Remember to secure paper and digital records in a safe place like MyBlock, and make sure you back them up too.
2. Don’t overlook credits and deductions
The tax refund is the single largest financial transaction many taxpayers will have in a year. The stakes can be high and mistakes can be costly, especially when it comes to life changes – getting married, having a baby, buying or selling a home, sending a child off to college or retiring. Not understanding how these life changes can impact your return causes many taxpayers to make mistakes and leave money on the table. In fact, the IRS announces annually that approximately $1 billion goes unclaimed in federal tax refunds.
Most taxpayers file their taxes using the standard deduction, but you may be eligible for a variety of deductions or credits that could possibly save you more, including:
* Education benefits: Federal tax credits can help offset the costs of higher education for yourself or your dependents – depending on your academic program, what year the student is in, etc. To qualify, you must pay for post-secondary tuition and fees for yourself, your spouse or your dependent.
* Earned Income Tax Credit for lower-income workers: Twenty percent of eligible taxpayers, particularly lower-income workers, do not claim the Earned Income Tax Credit (EITC). Keep in mind that eligibility may fluctuate based on financial, marital and parental status, which may cause taxpayers to be ineligible one year, but eligible the next. Also, people tend to overlook the EITC because they may not earn enough income to have to file a return. Remember that the EITC is a refundable credit, so even those who don’t need to file a return can still claim the credit.
* Itemizing deductions: Itemizing can save taxpayers hundreds of dollars, as only 1 in 3 taxpayers itemize, but millions more should. Owning a home is often the key that unlocks itemization, but some taxpayers with high state taxes and charitable contributions may also be able to itemize.
3. Avoid common filing pitfalls
Selecting the wrong filing status can affect which credits and deductions you are eligible for, the value of your standard deduction and your tax bracket. In addition, common clerical errors such as mixing up names, forgetting to include information reported on your W-2, 1099 or other forms, or even making mathematical errors can also affect your tax benefits.
Not filing at all is even worse – as the penalty for not filing a tax return is 10 times greater than the penalty for not paying in full. The best way to avoid this penalty, which could add up to 25 percent to your tax bill, is to file a completed tax return or apply for an extension. An extension to file is not an extension to pay any taxes you might owe. To avoid a penalty, you will need to estimate what you owe and pay at least 90 percent by April 17.
To ensure you get the maximum refund without delay this year, or if you find yourself filing incorrectly, visit hrblock.com for more information, to make an appointment with a tax professional or to start your own tax return online for free.