Is it already time to start thinking about taxes? Every year, filing taxes is an unfortunate but necessary item on the to-do list. But getting your taxes done doesn’t have to be a horribly arduous, taxing (pun intended) experience. Here are nine tips for getting the job done, courtesy of some friendly Certified Public Accountants (CPAs) and tax experts.
1. COME PREPARED WITH ALL YOUR DOCUMENTS.
Before you meet with your CPA, make sure you have all your documents. Take the time to locate and organize any W-2s, 1099s, and other tax forms you’ve accumulated during the past year. “I love seeing clients who bring in their tax documents well organized in a ready to review format. It makes my job much easier and saves time and money,” says Michael Yoon, a Senior Accounting & Tax Associate in Long Beach, California.
If you choose to forgo a CPA and use a discount preparer like H&R Block or tax software like TurboTax, organize all your documents in one place before you begin. Yoon adds that, because the burden of proof falls on the taxpayer, you should “maintain good documentation that can prove almost every number that goes on your return, for at least four years.” That way, if you’re ever audited (knock on wood), you’ll save yourself a lot of time and hassle.
2. DON’T LIE TO YOUR CPA.
Your CPA is there to help you, so don’t lie to him or her. Be upfront about your finances. Hiding an outstanding balance you have with the IRS or underreporting your income is a bad idea (and illegal).
Melanie Lauridsen, the Technical Manager for Taxation at the American Institute of CPAs, writes that some people lie to their CPAs because they’re embarrassed about money they earned by gambling or medical expenses they’ve incurred. Although any discussion you have with your CPA, like your therapist or doctor, is confidential, it’s not privileged information. So, unlike attorney-client privilege, your CPA, if subpoenaed, is legally required to reveal any information you’ve shared.
3. MAJOR LIFE CHANGES CAN HAVE BIG TAX CONSEQUENCES.
Where you are in your life has bearing on your taxes. The year you take on a second job, get married, have a child, or retire, your tax situation could become more complicated than it previously had been. Andrew, a CPA in Los Angeles, says that discount preparers “are fine, but if your financial situation is somewhat complex, you should see a CPA or tax professional who can give you personalized attention.”
If you decide to seek professional help, you should set up your meeting with your CPA between January and early March—but the earlier the better.
4. IF THE IRS INITIATES CONTACT WITH YOU BY PHONE OR EMAIL, BEWARE OF A SCAM.
The IRS is a big fan of snail mail, so it will always send you a letter before contacting you any other way. If you receive a call or email from anyone claiming to be with the IRS, be wary of a possible scam. Andrew recalls receiving a phone call last year from a local area code, with a man telling him that the IRS was threatening him with a major lawsuit. “I knew it was clearly a scam since I’m a CPA, but the call was convincing enough that I can understand how an older person might be fooled,” Andrew says.
5. EVEN THE IRS MAKES MISTAKES…
The technology the IRS uses is not exactly cutting edge. So, if you get a letter from the IRS stating that you owe a wildly inaccurate amount of money—like, $20,000—don’t panic. You didn’t necessarily do anything wrong. Just mail the IRS a letter explaining that you paid your taxes in full (with supporting documentation as proof), and you should be good to go.
A. Kitchin, a Tax Senior Associate and CPA, advises that people “always print tax payment confirmations as proof of payment.” Having a paper trail of these confirmations will save you a lot of stress should the IRS claim not to have received your payment. Even the IRS makes mistakes and sends automatic letters about issues that have already been dealt with.
6. …BUT THE IRS WILL CATCH UP WITH YOU EVENTUALLY.
The IRS’s goal is not to throw you in prison for tax fraud—it’s to collect the most tax revenue. If you’re really behind in your tax payments, contact the IRS to ask if you can do an installment agreement (ask about Form 9465). If you’re reasonable with the IRS, the IRS will be reasonable with you.
7. IF YOU’RE SELF-EMPLOYED, BE METICULOUS ABOUT TRACKING YOUR BUSINESS-RELATED EXPENSES.
If you’re self-employed, you may be able to deduct home office expenses (a portion of your rent or utilities), car expenses (if you use a car for work), or health insurance, reducing the total amount of taxes you owe. Emily Kingan, an Enrolled Agent with the IRS and owner of Math LLC, stresses the importance of keeping good track of receipts. “Business-related expenses reduce your income dollar for dollar in most cases. Whether it is a business bank account, credit card, or simply a shoe box, keep all business-related spending and receipts in one place.”
Kingan adds that it can be incredibly time consuming to track all your expenses if you use multiple accounts or mix business purchases with personal spending. “I think the best way to keep track is by having one bank account or credit card account that you use for all business spending. If you use cash for business spending, keep a logbook or a special place for your receipts.”
8. YOU MIGHT NOT BE ABLE TO BENEFIT FROM THOSE TAX-DEDUCTIBLE DONATIONS TO CHARITY.
Just because a non-profit organization tells you that your donation is tax-deductible, it doesn't mean you'll necessarily be able to deduct it on your taxes. “While donations are technically tax-deductible, many young adults are not able to get any benefit from these donations in reality,” says Yoon.
When you file your taxes, you can either take the standard deduction, which is a lump sum reduction in your adjusted gross income, or you can itemize your deductions. Itemized deductions are things like mortgage interest, property tax payments, and charitable donations. Because most young people don’t own homes or have a high enough income, they might not see tax benefits from the charitable donations they give.
9. TECHNICALLY, APRIL 15 IS NOT THE FINAL DEADLINE TO FILE YOUR TAXES.
If you don’t think you can get your taxes done in time, the IRS will give you an automatic six month extension—until October 15—to actually file your taxes. The catch is that you must pay an estimate of what you think you owe by April 15. “Taxpayers have the option to extend their filing deadline to October 15 (or the following Monday if the fifteenth falls on a weekend). This is an extension to file, not an extension to pay,” cautions Kitchin.
For most people, it’s simpler to pay and file their taxes at the same time, but people with complicated tax situations (like beneficiaries of some trusts who may not receive the proper tax forms until after April 15) have the option to file later.