Tax season is right around the corner and it’s time to settle up with Uncle Sam. Will you be ready? Here are 10 tips from tax professionals to help you get started.
Tips for Tax Season
1. Start Getting Organized
There is nothing worse than waiting until the last minute and being forced to hunt down all the forms needed for filing taxes. Save yourself a ton of trouble by preparing ahead of time. Keep all of your important receipts, W2s, and filing forms in a large envelop or filing cabinet fro the tax season accordingly.
2. Invest in your Retirement
There is no downside to preparing for retirement. You have the potential to grow your income and receive tax breaks for your investments. The most common retirement funds are:
- 401(k) or deferred pension: If your employer matches your contributions, you should make every effort to invest the maximum amount possible. Contributions made to your 401(k) are tax-deferred and the interest earned on them is tax-free.
- Roth IRA: Any investment you make on your Roth IRA is tax-deferred.
3. Protect your Identity
Identity theft and tax fraud have become more prevalent than ever. A great way to protect yourself from becoming a victim of someone filing taxes using your social security number is by obtaining an Identity Protection PIN. This six-digit number changes from year to year and can be used to file your taxes in place of your social security number. Remember to check in with the IRS for your current IP PIN if they do not send you a notice in the mail. It will come in handy!
Did you know some credit monitoring apps offer up to $1 Million identity fraud insurance? By signing up, you can protect yourself against identity theft while working on improving your financial health.
4. Remember to File EITC (Earned Income Tax Credit)
It may come as a shock, but, many employees forget to file for this tax exemption! When you file your taxes in 2018, remember to use the EITC Assistant Tool provided by the IRS to check how much money you are eligible to receive on your annual tax return.
5. Charitable Donations Qualify for Tax Exemptions
Donating to charities can be good for the soul and good for your pockets. By giving away some of those clothes in your closet you don’t wear or those books you don’t read, you stand a chance to receive a tax break. The amount you can deduct from your taxes is calculated by the fair market value; for donations totaling more than $500, use Form 8283 to file for Noncash Charitable Contributions.
6. Take Advantage of Higher Education and Lifelong Learning Tax Deductions
If you, your spouse, or dependents are pursuing higher education, there can be some great financial incentives waiting for you. The IRS rewards those ambitious individuals seeking to better themselves by providing 3 great tax credits:
- American Opportunity Credit
- Lifetime Learning Credit
- Tuition and Fees Deduction
Your educational institution should provide you with your annual tuition statement, Form 1098-T, for your tax records. When you file your return, fill out Form 8863 to calculate your allotted Education Credits.
7. Health Insurance | If you Don’t Have It, Get It
There are few things in life more important than a clean bill of health. If you did not maintain the minimum health care coverage throughout 2017, then you will need to file Form 8965 and Form 8962, Health Coverage Exemptions and Premium Tax Credit, respectively, on next year’s tax return. Visit the IRS’s website to find out how the Affordable Care Act and Premium Tax Credit can benefit you.
8. Report Foreign Assets and Overseas Bank Accounts
Investing overseas has its benefits, and with those benefits come responsibility. For those who have more than $10,000 in overseas bank accounts then you’re required to file a foreign bank account reporting form and a Statement of Specified Foreign Financial Assets – Form 8938.
9. The IRS Looks Favorably Upon Gifts
Since we file taxes right after the holiday season, it’s not uncommon for many of us to give our family and friends gifts. The IRS only asks that we report gifts greater than the amount of $14,000. That’s a lot of leeway! If you receive a gift greater than the set amount, then you aren’t required to report anything. The proper form for those giving is Form 709.
10. File Electronically
By filing your taxes electronically, you will get paid much faster. It’s easy, just file your tax return online and connect your chosen bank account for direct deposit.
Apart from these tips, you may consider signing up to one of the tax apps to make your life easier while filing your taxes this year.