Around this time of year there’s usually only one thing on our minds—taxes. While Tax Day is the 15th of April every year, due to the effects of the COVID-19 pandemic, the IRS has announced that it’s been pushed back to July 15th. However, that doesn’t mean you shouldn’t get ahead of the game if you still can. When anyone waits until April to file, they usually have a lot of catching up to do later on, but let’s face it…a lot of us still wait this long. Since finances are heavy on everyone’s minds right now, I wanted to share some tips to keep in mind when you do decide to file. Sadly, taxes can come with a lot of mistakes and repercussions and none of us want or need that right now!
Know the Basics
There are a few things to keep in mind while filing your taxes, starting with your filing status. The different status options are: single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child. These also are not mutually exclusive and some taxpayers may qualify to claim more than one filing status. If your children qualify as dependents, in some instances they’ll still need to file separately if they make a certain income. One big mistake that people make when filing their taxes is using an incorrect bank account number or routing number for their refund’s direct deposit. Triple check that your info is right so that your refund isn’t sent to the wrong person (the IRS will not help you with this).
Gather Your Paperwork
When it comes to tax filing you must cross your T’s and dot your I’s. Whether you’re filing in person with an accountant or filing them yourself with a software, you need every detail you can find. The last thing you want is the IRS contacting you over a minor mishap, leading to fines or other repercussions that could’ve been avoided. With that being said, gather all of your necessary paperwork for 2019 even if you think it might not be important! This is everything from your social security card to W-2/1099 forms, prior tax returns, bank information, and health coverage statement.
Contribute Towards Your Retirement
While you should always try to save for your future, tax season is a reminder of how important your retirement savings are. If you’re a full-time salaried employee, the company you work for likely has a sponsored retirement account such as a 401k. On the other hand, if you’re an independent contractor, freelancer, or self-employed retirement and taxes work a little differently. Contributions towards an Individual Retirement Account (IRA) are both tax-deferred and tax-deductible. There’s typically a maximum of $6,000 that you can contribute per year, but you can contribute towards your IRA until tax day to count towards your 2019 taxes. Side note: anyone who receives a taxable income can contribute towards an IRA.
Calculate Your Expenses
Yes, certain expenses are taxable! One of the biggest money-savers during tax season is that a variety of things can be considered a “write-off”. This can include anything from meals to transportation, gas, subscriptions, software, equipment, and so much more. There are standard deductions and itemized deductions—you can’t do both. Writing off expenses is great, but it can be tricky territory. My advice here is to get the help of a tax professional to guide you through properly filing these and avoid any mistakes (any wrong or dishonest expenses can lead to an IRS audit)! If you need help keeping track of all of your expenses, use a software like Keeper Tax, which goes directly into your bank account and populates business expenses.
Use Secure Tax Software
Speaking of software, I know that everyone doesn’t go to an accountant and some would rather file their taxes themselves. That’s totally fine and it’s becoming a lot more common! These software systems are usually affordable and user-friendly, but you have to make sure that they’re secure. If you take the online route, do some research and read reviews on the different options that are available to you. Nobody wants to be in a situation where their personal information is at stake!
Make the Most of Your Refund
Once it’s confirmed that you’re getting a refund I know how tempting it can be to go all out and book a vacation, invest in certain pieces, and what not. However, this isn’t always the best way to make the most of your refund. If you have any debt under your belt, use your refund towards that instead. You can also use this as an opportunity to save more, invest your money, and having more financial security.