10 Things You Need To Know About Doing Your Taxes

Doing your taxes correct is an imperative – so here are ten tips to ensure that you do just that – read on.

Businessmen doing business taxes

1. It Is Best If You E-File

E-filing has the potential to save time, trees as well as money for you and the IRS. If you make use of tax-software, the forms that you will need are usually built in already, and if you are owed refunds, you will get them back faster. To get an idea of how to file a tax return, then you should take a tax preparer course – it will help shed some light on the matter.

However, there are still some scenarios where you will still need to file paper returns. If you are required to file paper returns, then look over a guide dedicated to IRS forms, which will give you information on exactly which one you will need when it comes to your exact tax specification. If you fall into this category, read over our instructions on how you need to file. Keep in mind that the tax refunds for this year will probably be delayed a week maybe two.

2. If You Do Get One Thing Right, Ensure It Is Your Filing Status

Your filing status happens to be important as it will determine the amount that you save or pay in taxes. In addition, if you do it incorrectly it can result in a dreaded and unwanted audit. (Make sure you know about anything else you can get audited for).

Your unique filing status will express how you would like the IRS to treat you, and usually determines what credits and deduction you will be permitted to take, the forms you need to complete along with more. To ensure you get this right, look over our handy flow-chart.

3. The Magic Number Will Be Your Adjusted Gross Income

When you start doing your taxes you will start to notice instructions like: “if your AGI is under $100,000” or “up to 10% of your AGI”.

This is how AGI operates: You report on your income. However, the government will subtract specific expenses like IRA contributions or education tuition, in order to determine your AGI which stands for Adjusted Gross Income. Your AGI, will in turn then determine what deductions and credits are applicable to you, as well as how large they will be. After taking the additional credits, deductions, and the exemptions (which we will discuss below), you will arrive at your taxable income.

4. Exemptions Are A Fast Way To Lower Your Tax Bill

Were you aware that you receive tax discounts for being one of the contributing members of society. This includes being married or having children. These are discounts known as exemptions and will lower your income amounts that you are taxed on, by up to $3,700 each in the year 2011.

This is a basic example, but if you happen to make $50,000 and you are in the 25% tax bracket and you claim on a single exemption, you will pay $925 less in your taxes, because 25% of $3,700 equals $925.

A CPA is doing business taxes

5. A $1,000 Credit Is Equal To $1,000 In Savings

Unlike the exemptions mentioned above, which will lower the overall amounts of income that you will be taxed on, the credits will reduce the taxes that you owe directly. For example, if are owing $3,000 in taxes, the credit will then be subtracted from this amount. To put this in another way, if you have received a $1,000 credit, it will mean you will be paying $1,000 less in your taxes. It is sweet-and-simple, which is a rarity when it comes to the tax-code.

6. Itemizing Your Deduction Could Translate Into Saving You Thousands

One of the biggest decisions you will need to make will come down to itemizing. You have two options to choose from:

A: Take a standard deduction. When your taxes happen to be simple, then the government will not expect you to go through complicated processes to obtain the deductions that are owed to you. This is when you are able to use a standard deduction, which is similar to the exemptions that we spoke about above which will reduce the overall income amount that you are taxed on. Many of the taxpayers use a standard deduction, that is worth between $5,800 to $11,600.

B: Itemize your deductions. This will mean itemizing each of the deductions that you will qualify for. Taxpayers generally take this route when the amount of all the deductions is larger than a standard amount according to Tax Returned. Some of the items that you may want to itemize will include mortgage-interest payments, charitable donations that are large and medical expenses.

The itemized versus the standard decision will have to do with time and money. For certain people, making the time in order to itemize each item could even up saving them thousands in their taxes. Yet, when itemizing is not necessary, doing this task could waste you time without a financial benefit.

7. An Audit Is Not The End Of The World

Yes, they may be stressful or frustrating. Yet receiving a notification for an audit, will not result in a total melt-down in your own financial world. To process millions of different tax returns quickly, the IRS uses specific flags which automatically trigger audits. This does not always mean you have actually done something that is wrong, it may mean that the return contains something which may signify that you are attempting to defraud the IRS, or you may have made a math mistake. The IRS will correct basic types of math mistakes on your behalf.

If you have completed everything right on the return, it should be easy to prove the fact that you do pay all your taxes. The IRS will then agree on this and then leave the return as it is, and the audit is the over and you will not be liable for a fine or even worse jail time. If you have made mistakes you may need to pay in more when it comes to interest, penalties or taxes.

Doing taxes

8. You Are Able To File An Extension For Your Paperwork, But Not For A Payment

If you are unable to make the deadline to file taxes when they are due, the IRS can be understanding. In fact, the reputation for their fierceness is actually overrated. You are allowed to file for an extension for your paperwork and we will give you information on how you can do it here.

If you do apply for an extension, you won’t be able to delay paying for taxes that you owe. You will be required to pay what you have already estimated that you owe. If you do not have the funds available to pay the tax bill, you are offered with different options, which ranges from using a credit card provided your tax bill is low, or to set-up a payment arrangement.

9. In Some Cases, You Will Need An Accountant

We enjoy DIY projects, and for some people it is an easy task for them to do their own taxes. Yet many people will require the assistance of professionals in order to navigate through tax codes.

The situations which may mean you need to hire an account will include:

  • Making contributions that are non-cash to charities
  • Taking complex deductions
  • When you trade frequently in investments
  • You own a business, or you are self-employed
  • You have currently undergone a big life-change like purchasing a home or you have had a baby

If you are still unsure, take our quiz in the free Ace Your Taxes Bootcamp.

10. Do Not Get A Rapid Refund

If you are working with a professional tax preparer, they may offer you with an instant or rapid refund. Avoid taking it.

While it may appear that you are getting a refund on your taxes faster, this is known as a: “refund anticipation loan”, which is actually a type of short-term loan, which comes with predatory interest rates which will take a large chunk form your overall refund, which could amount to $50 or more.