Filing tax returns? Six money-saving tips.
The challenges of tax season are upon us, and if there’s one thing that novice and experienced taxpayers alike have to learn and relearn every year, it’s that lots of people want your money. The federal government, state and local governments, certified public accountants (CPAs), and the tax preparer advertising on TV all want a piece of the pie. By getting organized early and following these expert tips as April 15 approaches, you’ll avoid the rush and, in all likelihood, a lot of money.
Get ready
Financial institutions had until Jan. 31 to send out W-2s and 1099s in the mail, so you should have received the necessary forms by now. If you find that they are missing, contact your employer to find out why they haven't been mailed and make sure that they are being sent to the correct address.
- Tax tip: Save money by filing sooner than your friends
In this first stage of tax season, take advantage of early bird deals that will disappear as the crunch date approaches. If you’re feeling ambitious, you can cash in on free or heavily discounted deals as tax-prep companies hope to front-load some of the rush to make space for more customers come tax day.
- Tax tip: Determine your eligibility for IRS Free File
Even if you don’t quite make the early bird deals, you can still use the IRS Free File software to file your federal taxes if you make $57,000 or less a year. Regardless of income, all taxpayers are eligible to use Free File’s fillable forms.
Get set
Let’s face it: Not all tax preparers were created equal. Once you have your tax paperwork in hand, even if you don’t understand what all your documents mean yet, your next step is to find the best tax-prep option to get the job done for your needs, whether it’s meeting a CPA in person or purchasing online tax-prep software.
- Tax tip: Check your preparer’s qualifications
If you want to check your tax return preparer’s qualifications, ask for his or her Preparer Tax Identification Number (PTIN). You can also check with the Better Business Bureau to inquire if your preparer has any questionable history. In addition, you can ask your preparer if he or she has taken any continuing education classes to keep up-to-date on new tax laws.
- Tax tip: Do the math on do-it-yourself tax software
If you are planning on preparing your own tax return by using DIY tax software, be sure to read the past customer reviews to see how satisfied they were when they used the tool. But don’t just trust other people's reviews, since experiences differ so . Do the math yourself. In this case, NerdWallet took the first step to do some of it for you in this comparison: TurboTax versus H&R Block software.
Go!
As you start preparing your tax paperwork and getting it ready to file, don’t forget to include any capital gains information if you’ve sold investments this year.
- Tax tip: Be aware of capital gains changes
Due to new "fiscal cliff" legislation, capital gains and dividend tax rates are increasing from 15 percent to 20 percent for singles earning over $400,000 and couples earnings over $450,000. Also, don’t forget to expect an additional 3.8 percent capital gains tax applied to singles earning over $200,000 and couples earning over $250,000.
- Tax tip: If you’re running late, reset the clock
If you already foresee a situation where you simply can’t get your taxes in on time, there’s an easy answer. File for an extension – Form 4868. You still have to pay what you think you owe by April 15. You'll have to pay an interest penalty if you end up underpaying, but you'll avoid the potential for more severe penalties if you don't file at all.
For more top 2013 tax tips, visit the official IRS Tax Tips for 2013 website.
– Susan Lyon is an analyst with NerdWallet Investing, a financial literacy site that seeks to empower investors by providing unbiased and transparent access to investing and financial markets information.
