Tax season: those two words have the power to invoke pure anxiety or hopefulness depending on who you ask.
It’s no wonder, the tax code is such a huge, inscrutable document, nothing that a mere mortal could understand, and we are told that the IRS – the boogey man of modern day – is poised to get us, if we make a single mistake.
Fortunately for us, the process of managing our taxes has become somewhat streamlined thanks to several online do-it-yourself services, and we can always call on a trusty certified public accountant (CPA) should we want a bit more handholding and expertise in the process.
If you are, however, planning on doing your taxes on your own, here are a few tips to ensure that your filing process will be hassle-free, and keep tax season relatively stress free.
Tip 1: Stay informed
In the sea of IRS regulations and filing forms, it is easy to get lost in the mix of how to properly file your taxes. Some rules and breaks apply to nearly everyone, while others only impact a select few, such as those of us who are self-employed.
There are a few changes you should know about for 2016. Some could bite a chunk out of your family budget, while others may put more money in your pocket. For example, Affordable Care Act penalties–i.e., the penalty you’ll have to pay if you spent all or part of the year uncovered by health insurance–are actually higher this year than last. But some good news is that this year the personal exemption increases by $50 to $4050.
In order to stay afloat without drowning in tax lingo, it’s best to inform yourself of what is available to you well before filing season rolls around. If your situation has changed over the past year, be it getting married or having a child, it is important that you discuss your filing options with a professional.
Tip 2: DIY or CPA? Choose wisely
In this age of abundant technology resources, it is tempting to do just about everything from the comfort of your own home. Many sites (not to mention W-2 software and 1099 software) offer filing services for little or no charge no matter what kind of filing status you fall under, boasting the fact that using their service will guarantee you the highest refund amount available.
The filing process is broken down into easy-to-understand, simplified steps that allow you to plug your tax information in. The whole things takes about an hour of your time and is fairly easy to use, even for the novice filer, assuming your finances and taxes are simple and straightforward.
PRO: Relatively cheap, can do your taxes anytime, you get to learn a bit about the tax code
CONS: You’re on the line if you made a mistake. If your taxes are complicated you may miss either an opportunity for a tax break or to file something you were supposed to.
Filing with a CPA or tax services company is the most traditional way to get your taxes done. It involves getting in touch with a reliable professional who has expertise and invaluable knowledge of the tax code and filing requirements.
Depending on your situation and what you have been taxed on over the course of the year, it may make sense to seek professional help to ensure that everything is done to code and correctly – factors like your job, if you own a home or not, and whether you are a student are all important in the filing process. When it comes to taxes and Uncle Sam, it is always better to be safe than sorry!
PRO: Peace of mind, get expert support, share information and sit and wait for results
CONS: More expensive, need to do a bit of work to find the right person for you
Tip 3: Find the Break – Get familiar with tax deductions
Simply put, tax deductions lower your taxable income, which in turn lowers the amount you owe in taxes. By definition, a deduction is an amount of money you can subtract from your earned income. Often, your deductions come from expenses you had to cover throughout the year. So, for example, education expenses, such as a portion of tuition, or business expenses, such as a new computer or gas, can be subtracted from your earned income so that you ultimately owe less in taxes.
Other common examples of deductions include charitable contributions (the money you gave to your public radio pledge drive, or the donations you made to your local thrift store) and mortgage interest, and a portion of child care fees. If you are not sure of what to write off as a deduction, check in with a CPA, this is EXACTLY the kind of thing they can help you with.
Tip 4: Get the credits (tax credits that is)
Tax credits are essentially refunds the government gives back to you for what Uncle Sam considers to be “good” financial or other behavior. So, for example, tax credits are given to those who buy a first home, adopt a child, or add certain environmentally-friendly elements to their home, such as solar panels.
With the right preparation and knowledge, tax season can be a breeze. Make yourself aware of all the options and benefits available to you ahead of time to avoid the last minute rush and anxiety. Proper tax education will ensure that you will not become inundated by the responsibilities of filing!
Julie Morris is a life and career coach. She thrives on helping others live their best lives. Learn more about Julie at JulieMorris.org.