The tax season begins in mid-January, giving filers three months to gather all their information and prepare to file. For filers expecting a refund, tax season might be something to look forward to. It’s almost like a savings plan, receiving untouched money in a lump sum.
On the other hand, those who make too much, or do not have enough deductions, or simply did not withhold as much, tax season becomes a thing of dread as they expect to pay the IRS. Furthermore, for those with complex returns with all the itemized deductions, credits and so on, tax season is immediately stressful. Three months might seem like far too little time to track down all the receipts and other necessary items.
Depending on a filer’s situation, tax season can be a welcome thing or it can be a season of dread. However, no matter how complicated or simple a filer’s situation is, tax season does not have to be full of stress. Planning for tax season the other nine months of the year and following these tips can help make the season easier.
Filers with easy returns and even those with semi-complex returns should consider filing their taxes online. There are many places to file online, from the IRS site to one of the most prominent tax programs of all time, Turbo Tax. Many online tax programs have affordable fees and some do not charge for simply using their software. You can also use an online site to fill out the return, then file manually through the mail.
Simple returns up to semi-complicated ones are the best type of taxes to file online. It saves money on using an accountant or patronizing a tax agency. Online filing sites typically offer plenty of guidance for those who are not used to doing their own taxes. Sometimes the sites even eschew using a model of IRS forms, but instead ask pertinent questions that fill out the forms. Online services also do a good job of presenting every option to make sure filers are getting all the credits they qualify for.
Online filing services typically let the filer know during the return and how much money they are due for a refund, or conversely, how much money they owe.
Understanding All Available Tax Credits
It is extremely important to understand tax credits and which ones are available for which situations. This is something that online filers especially will want to be aware of. Understanding tax credits can give filers a heads up on whether they might get a refund or whether they can feel comfortable about filing taxes individually instead of with an agency or accountant.
Most people are unaware of at least a few different tax credits that are available to them. Tax credits exist for renters, student loans, dependents, job-hunters and work related expenses. Filers should check guidelines carefully for credits that might apply to them.
Another reason to investigate credits ahead of time is that it helps gauge whether filing online will be easy or more complicated. If several credits or deductions are available to one filer, it might be easier to let a tax agency take care of it.
Tax season is ultimately about finances. When filers are investigating their finances for credits or information, it might also be a good time to determine if there is also debt to be dealt with. Upon looking through expenses, a person might discover that the interest on their credit card bills is extensive and minimum payments are not moving the balance. If that happens to be the case, consider looking for a zero percent APR credit card with balance transfer options.
There are many options out there for new cards and quite a few of them offer a zero percent intro rate for balance transfers. The time limit on the rate can even be up to 18 months, just as an incentive to get people to switch cards. Take advantage of this type of offer and work on consolidating debt for next tax season.
For filers that know they will end up paying, the pressure to find money elsewhere can be overwhelming. One solution is to implement temporary spending cuts. Start setting aside money from paychecks early to prepare for a potential IRS expense. Putting the set aside money in an account with interest can be a way to make the money work while it’s being set aside.
One clue as to whether a filer can expect to pay in any particular year is how much money was removed from their check during the year. If a person does not pay much in taxes from each check, they should expect to more than likely owe money to the IRS next tax season. If the money is substantial, they may be put on a payment plan, which is an additional monthly bill.
The good news is that most people can find plenty of little ways to cut spending. It might mean not going out to eat as much, or not driving as far, or it might mean cutting back on entertainment, such as trips to the movie theater or a concert. Work on categorizing unavailable income and disposable income. Unavailable income should include bills as well as the amount decided upon for a future IRS payment. Disposable income is essentially the amount left over from this.
Ultimately, the best way to avoid being in the red when tax season rolls around is to restructure paychecks to make sure more taxes are being paid rather than less. That makes it more likely that a refund will be owed the following year. For those who do not like the idea of the IRS holding onto their money for a year, consider taking the amount out that the IRS would take and then putting it into an interest-bearing account. That way, the money is still counted as unavailable, but will be making money in the meantime.
With a little extra planning, every filer can take some of the burden and stress out of tax season.
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