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:
Faster Refunds.
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from the previous year and outdated direct deposit information may be on file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.
Owe Money.
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.
Education Credits.
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
