Well, it's almost that time of year again! As all Americans know, the deadline to file your taxes will be upon us soon. Just mention the IRS or taxes and it's enough to make us break out in a cold sweat! Everyone seems to dread the gathering of necessary paperwork and forms to get ready to file. Add to that the constantly changing tax laws and you have a good mix for s-t-r-e-s-s! While we dread the filing, we really fear the nasty possibility of an audit, however, with a few simple strategies we can take the fear and dread out of filing, while quickly and efficiently maximizing our refund or reducing our tax owed.
The first strategy is to organize and save the appropriate paperwork. Keep written records of ALL income, (W2's from jobs, interest received on checking and savings accounts, previous year state refund amount, winnings from lotteries, retirement income, dividends and disbursements from investments, money from any property sold, etc..) In addition to income, you need to keep records of what you spend and donate. While most homeowners know to keep records of the interest and taxes paid on their home, they should also keep records of amounts spent on energy efficient improvements. If they use their home for business, keeping track of regular improvements to the business area of their home can be helpful. Donations to charitable organizations should have written recordation, as should significant amounts of out of pocket medical expenses. This can include mileage to medical facilities, prescription medication or medical supplies, and payments to doctor or dental providers. Business expenses 'not covered by employers' is another great record to keep. Work related moving expenses, union dues, and unreimbursed travel expenses can all add up to significant deductions. Another overlooked area is dependent care expenses. Those daycare bills can add up but this deduction can also be applied to expenses incurred from taking care of aging parents and relatives. All in all, it may be a good idea to consult with a professional tax preparer to get an idea of what types of records should be saved throughout the year in order to maximize your filings.
The second strategy is to know what your past tax filings included in order to prepare yourself for the future. If you know that you owed money with past tax returns, be prepared to owe this time if you have not made any changes to your situation. If you find yourself owing every year, it may be a good idea to check the number of exemptions claimed on your paycheck. Decreasing your exemptions will increase the amount withheld and therefore decrease or eliminate what you owe in April. Of course if you own your own business, it is important to work with a tax advisor to make sure that you are estimating and making appropriate tax payments throughout the year. The best way to combat the anxiety of tax time is to be prepared and be knowledgeable of your own situation.
The third strategy is simple...Know what is due, when, and where. The IRS has set the due date for federal tax filing this year as April 17th (IRS.GOV). Virginia has set state taxes due May 1st (Virginia.gov). Maryland has set April 17th as the due date for state (Comptroller of Maryland). The District has set April 17th as the due date (DC office of Tax and Revenue). Remember, if your paperwork is not ready you can file for an extension. Know however, that while an extension gives you more time to get your paperwork together, it does not extend when your payment is due. If you owe the state or the IRS, you must still make an estimated payment of taxes owed when you file for your extension by the due dates listed above. Not doing so can result in penalties and interest on top of what you owe.
Finally, do not needlessly fear an audit. According to wwwebtax.com, less than 2% of individual tax returns were audited in 2011. When filing your taxes just make sure to save all the written documentation that supports the numbers you are reporting. Check and recheck the spelling of names and the correct social security numbers for yourself and all of your dependents. Lastly, check your math to make sure all numbers add/subtract accurately. According to the IRS, you should save your tax records for three years but many tax sources recommend 7 years, so do not throw away those records anytime soon. Take a breath, gather your papers, pencils, and calculators and file those taxes! Of course, do not be afraid to seek the advice of a professional who can show you many helpful ways to organize and save your information throughout the year, as well as help you find many credits and deductions that you may not have known were available.
Resources for tax help:
• IRS.GOV (local Fredericksburg office 540-899-9450)