There’s no denying the fact that doing your own taxes can be an intimidating affair but at the same time it is also a life skill that should be developed by all people who call themselves to be ‘financially informed’. Doing your taxes is always complicated as there is lot of paperwork that needs to be taken care of and the cost of a blunder can be too high in the form of penalties and IRS audit.
Nevertheless, before you get too scared at the thought of calculating your taxes, the good news is that there are several steps that you can take in order to keep your tax costs down and to ensure that you’re doing your documents in a proper way.
#1: Reap the benefits of a tax-advantaged savings account
One of the best ways in which you can save on taxes is by investing in accounts which can secure your future. IRA, 401(k) or an HSA (Health Savings Account) are few such accounts. You can open a 401(k) account both with the help of your employer and solo. If both yours and your spouse’s income is below a certain limit, you can also make tax-deductible contributions to an IRA. Contribution limits usually change annually for 401(k), HSA and also for IRA accounts. You’re allowed to make the contribution till the tax day for that respective year.
#2: Leverage the tools offered by IRS
When you choose to file your taxes, there are several vital decisions to be made like whether or not you’ll claim or itemize a standard deduction, the status of filing which is appropriate for you and whether or not the child whom you’re supporting should qualify as a dependent. Such decisions usually have a huge impact on deciding the total amount that you pay on your taxes. IRS offers a tool to determine your filing status and they also have a tool to check whom you may claim as a dependent. There are also tools which provide you info on itemized versus standard deductions. Make use of these tools to make the calculation process easier.
#3: Your tax paperwork should be kept together
It is needless to mention again that there will be lots of paperwork for filing your taxes which include the papers of the companies for which you work contractually or the forms of your employers, your statements for mortgage interest, student loan statements and receipts which can back up the credits or deductions which you can claim. If any paperwork goes missing, you can lose on your dollars. Gather all the forms in a folder or a box so that when the time comes to file your taxes, you will know where to look.
#4: Start the process way ahead of time
The tax day is usually 15th April or the next business day in case the 15th is a holiday or a weekend. You shouldn’t ever make the mistake of waiting till the last minute in order to make your paperwork ready. You may take time to fill out all the tax forms, even more when you miss things which you need like 1099 from your company or the other vital tax forms. While gathering all these, if you miss the deadline for filing your taxes, you’ll incur a huge penalty. This is why experts always suggest you to start off with the forms way ahead of time so that you can finish on time.
#5: Seek help when needed
Are you someone who is not sure about where to start while doing the taxes or the way in which you can maximize your tax savings? If yes, you could use the tax software to make matters easier. There are tax professionals waiting to help you with the process of filing taxes.
Hence, as a responsible citizen of the country, you need to follow these tips to ensure you file your taxes on time. Avoid costly mistakes which can make you pay the IRS more than what you should.
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