With that dreaded tax deadline less than four weeks away, many Americans are starting to get serious about filing. Putting off tax prep is understandable, considering that the average taxpayer likely paid over $8,500 in taxes in 2013. Gross collections of individual returns in 2014 topped $1.2 trillion with the IRS processing over 147 million returns.
While preparing your taxes is about as much fun as a root canal, it’s a task better done early, especially since Americans will receive less support from the IRS this year due to budget cuts. Consider the following five tips to tackling your taxes this year.
1. Prep now for less headaches later.
Taking the time to prep now means you’ll have a lot less headache later. In addition to collecting traditional tax forms like W2s and 1099s into a single file, make sure you have what you need to show compliance with the Affordable Care Act if you did not have health coverage from your employer in 2014. Receipts for any charitable donations and other tax deductions are paramount in order to reducing the amount you owe the government. Ultimately, having all of these documents ready will make preparing your taxes easier, and cheaper if you’re paying someone by the hour.
2. Choose your software or preparer wisely.
If you’re familiar with the tax-filing process, organized and haven’t experienced any big life changes, you’re a good candidate for self-filing. If you moved last year, got married or divorced, had kids or started up a new business, you might consider hiring a professional. The choice is personal and there are no hard-and-fast rules about which option is better. If you choose to go the self-filing route, check for coupon codes from CouponSherpa.com for deals like 15% off tax software from H&R Block. If you’re hiring a pro, Bankrate’s guide should help you understand which tax professional is most appropriate for your situation.
3. Considering filing an extension? You still have to pay.
Filing taxes is a stressful task no matter who you are, and up to 25% of Americans put it off until the last two weeks. This isn’t advised, especially if you have a complicated return requiring the services of a professional. In the event you find yourself down to the wire, requesting an extension will indeed buy you some more time. However, for taxpayers who still owe money to Uncle Sam for 2014, the consequences of filing late are pretty severe. With every day your tax return is late, the IRS will penalize you with monthly interest charges until you pay off your tax debt in full. So pay as much as you think you owe by the deadline.
4. Tax refund: to spend or to save?
Americans are taking a practical approach to how they plan to spend their refunds this year. According to the National Retail Federation, 47% of those expecting a refund plan to save it, 40% plan to pay down debt, and 25% will put it toward everyday expenses. In addition to putting your refund into a savings account, you can also set up an emergency fund or create a 529 Savings Account for your child. Ultimately, it’s important to remember your refund isn’t “free” money; it’s your money, and using it wisely is paramount to your financial health.
5. Consider lessons learned for next year.
While you may be eager to put this taxing process behind you, it’s important to look ahead to next year’s filing. Is there anything you can do differently this year to make it less stressful in 2016? This can be anything from creating a file into which all tax-related documents and receipts are stored, to having HR change your withholdings to get more (or less) money per paycheck, to finding ways to reduce your taxable income. For those who own a small business or work for themselves, save time by purchasing a gadget like the NeatDesk that turns paper receipts into digital files and records vendors, dates and total expenses.
Andrea Woroch is a consumer and money-saving expert for Kinoli Inc. From smart spending tips to personal finance advice, Andrea helps transform everyday consumers into savvy shoppers. As a sought-after media source, she has been featured among such top news outlets as Good Morning America, Today, CNN, Dr. OZ, New York Times, MONEY Magazine, Huffington Post, Forbes and many more. For more information, visit AndreaWoroch.com or follow her on Twitter for daily savings advice and tips.