Terrific tips for tax season
The end of January means W-2s are getting mailed out and you can start preparing your taxes. Here are some tips to ensure your yearly tax return goes smoothly.
The normal deadline for tax returns is April 15, but this year you get a 3 day extension. Emancipation Day, a holiday in the District of Columbia, falls on the 15th this year. However, if you file after the 18th, you will be penalized for everyday after the 15th.
File on time and if you owe money, pay on time. The IRS wants 90% of what you owe by the deadline or you will owe them even more money and they don’t let debts slide. If you aren’t ready, file an extension – IRS form 4868 gets you an extension until October 15.
Keeping well organized records all year will help you come tax time. That shoebox really calls out to your receipts, but if you can spend a few minutes throughout the year to organize your information, you will be happy in April.
Make sure to use the correct filing status. You could lose a lot of money in credits and deductions if you put yourself into the wrong tax category.
How to Avoid an Audit
Always report your income. If you leave out interest, dividends, etc., your chance of an audit goes up dramatically. Don’t even consider leaving out standard wages because that will almost guarantee an audit.
Don’t round your numbers and don’t estimate. This will increase the likelihood of an audit.
If your income is suspiciously lower than others in your field or your income has severely changed over the past few years, it raises a red flag.
The IRS knows what the norm is for people similar to you and if you deviate too much, it raises your chances of getting audited. That doesn’t mean you can’t donate half your money to charity, but make sure to keep the receipt if the IRS comes calling or turn it in with your filing.
The best way to combat a tax audit is to be honest in your filing and keep substantiating documents. Take all deductions and credits that you are legally entitled to, don’t try to fudge the numbers and you will be all right.