The early bird really does get the worm, according to a recent article featured on The Motley Fool, a multimedia financial-services company that reaches millions of people each month through its website, books, newspaper column, television appearances, and subscription newsletter services. Author Jim Staats of Manilla.com reports that it’s never too early to prepare the necessary paperwork before the April 15th deadline; in fact, there are several ways that he suggests you can try to lower your tax bill each year:
If you can, pre-pay: By paying certain items in advance- such as college tuition, property taxes, state and local income taxes, charitable donations and tax preparation services- can help increase your tax write-offs and potentially push you into a lower tax bracket.
Write it off: The convertible you bought yourself on your 50th birthday? You can deduct the sales tax on a major purchase-including a home or large scale renovation- from your taxes.
To ensure that you are eligible for these benefits, it is always advisable to seek the advice of a tax professional, as specific tax requirements vary from household to household. Lifecycle events can also impact your tax bill, such as marriage, the birth of a child, retirement, relocation, and an inheritance. While many of these events are difficult to anticipate, it is important to look forward when trying to plan your year end tax strategies.
If you’re feeling the pressure of collecting the right paperwork for tax time, you’re not alone. According to the Internal Revenue Service, just over 12 million people file a six month tax extension, which allows them until October 15th to file their taxes.
It is important to note that this does not mean that it is an extension to pay your taxes- it’s just an extension on filing your paperwork with the IRS. A popular myth that tax filers often adhere to is that once they complete their tax return and see that they owe money, they have until October 15th to pay. Invariably, this will lead to a very expensive relationship with the Internal Revenue Service, as penalties and interest will start to accumulate. You must pay an estimated amount by April 15th; if you overpay, you will receive credit on the following year’s tax bill. If you still owe money, you will be given the extended time to pay it- the IRS just wants to see you that you’ve made the effort. In essence, an extension does not extend the deadline for paying your tax liability.
Gather the right forms: Save yourself- or your tax professional- a little grief by getting your W-2’s together to report wages, your 1099’s to report interest and dividends, your 1099B’s for reporting stock and bond sales, and your 1098s for deducting your interest and taxes.
Educate yourself: 2013 was a big year of change in the tax world. Make sure you’re aware of the new requirements including American Taxpayer Relief Act of 2012, Affordable Care Act Changes for Tax Year 2013, Defense of Marriage Act (DOMA), and other miscellaneous changes.
Know when to ask for help: While tax professional services cost money, they are likely to save you money in the long run by finding deductions and understanding complicated tax laws. In other words, don’t be pennywise and pound foolish.
E-File: Not only do you eliminate mail delays and lost checks, but the IRS will direct deposit your refund into your bank account so you’ll have access to your money faster. On average, the IRS will take approximately ten days to give you a refund- more than half the time it would take if you sent your taxes via snail mail.
Note: HWS provides this information as a courtesy. This is not be construed as specific tax or legal advice. HWS assumes no liability for incorrect information. For information specific to your situation you should consult the appropriate tax, legal or insurance professional of your own choice.