So, the 2014 tax filing season has started, and everyone is scrambling around collecting forms getting ready in anticipation of either a large refund or the possibility of writing checks.
What is it about these forms that make most people squirm in discomfort?
My own father told me just a few weeks ago that he’s decided to stop filing tax returns! He finds it entirely unjust that someone his age should be expected to pay taxes. Benjamin Franklin uttered these words: "'In this world nothing can be said to be certain, except death and taxes." The good news is that if you are thinking of filing a tax return you must be alive.
Here are some tips to make the process a little less painful:
People who file earlier in the filing season will receive their refunds faster than those who wait until later in the season. If you want your money even faster, opt for direct deposit.
Over the last few years we’ve seen refunds issued in as little as three to seven days for some of the earlier filers that utilized direct deposit. Hint: Do not change bank accounts before receiving your refunds if you use the direct deposit option. This might seem like a no-brainer, but every year we chase refunds for people that move bank accounts before their refunds come in.
Be sure to also check your direct deposit information if you’ve changed banks within the last year. This information carries forward from the previous year and outdated direct deposit information may be on file from a previous year. The IRS is not liable for refunds sent to incorrect accounts so it may take a while to trace a refund that went to the wrong account number.
If you owe money on your tax return, don’t wait until the last minute to do your return or file an extension. Start the return early so you know the amount of your liability and have time to search for extra deductions.
You can still file your return electronically when it’s completed, but you have until April 15th to pay the tax. When your return is filed electronically you will be provided with vouchers to pay the tax that you can mail on or before April 15th. Also, an extension is an extension of time to prepare the taxes not to pay the taxes. So, any tax due is still due on April 15th even if you file an extension.
The IRS will charge interest from April 15th until the date you pay the tax, and they may disallow your extension and charge you with a failure to file penalty if you don’t pay enough tax with your extension.
If you don’t have the funds to pay the tax liability, you can set up an installment agreement. The IRS and most states offer new streamlined installment agreements that can be set up fairly easily.
Watch Your Dependents.
Every year we correct a large number of returns for clients who have working teenagers that file their own returns and claim themselves as dependents on their own returns. If the teenager files their return claiming themselves as a dependent the parents cannot file their own return electronically and will need to file paper returns, greatly delaying their refunds.
The dependent will also need to file an amended return to correct the filing.
In most situations it is more beneficial for the parent to claim the child until the age of 24 providing they are a full-time student.
Currently, these are some of the best tax credits available and you can receive a maximum credit of up to $2,500 with only $4,000 in tuition and related costs. This includes tuition costs paid for with student loans.
Unfortunately, you need a Form 1098-T and most schools send these forms addressed to the student. Be sure to watch for mail addressed to your college-aged dependent that will be needed to complete your tax return.
Know your Basis.
Every year a large number of our client’s returns are not able to be completed because we are waiting for clients to collect basis information. If you sell investment property or stocks, you will need to know what you originally paid for the asset/stocks and the date of purchase so that we can calculate any gain or loss on the property.
Fortunately, most brokerage companies now include this information on their tax statements in regards to stock sales, however, if the funds did not originate with the brokerage firm this information may not be able. For investment property you will need to know the original cost plus any improvements done to the property.
Lastly, use your tax appointment as an opportunity to plan effectively for the current tax year. Discuss any potential income changes with your tax preparer and make adjustments to tax withholdings or estimated payments so that you can be prepared for the next filing season.
Over the years, clients that have taken advantage of this opportunity to plan ahead tell me that they have less anxiety at tax time. As a tax preparer, I have found that I love how the tax season matches the season outside my windows. The cold and snow seems to align with the intensity of the work that we do during the winter months, and the end of the season in April coincides with the new growth of spring that starts to appear outside my windows.
The end of this cold harsh tax season brings with it warmth and new growth; watch for it!
Sherri Mahoney-Battles, Enrolled Agent