This year welcomes hundreds of thousands of new taxpayers and although many may have received some direction on how to go about getting ready for the tax season, many may be on their own. As we go along every year, we develop our own routines often dictated by our personalities so it is a good practice to introduce some positive habits especially when it comes to the subject of taxes.
Tax filing good practices
In no particular order of importance, below are some ideas to be aware of each year. These ideas apply not only to those filing for the first time but can be handy for anyone who wants to introduce more order into their tax life:
- Decide how to file – One of the most important decisions in whether you want to file taxes on your own either on paper or electronically or have someone else do it for you; first-time tax filers may feel unsecure to file on their own but in most cases their tax return is relatively simple, i.e. one or two W2 forms, no investment income or a property; in many of those cases a tax software can handle that tax return as good as anyone else and an advantage of using a tax software is that it’s quite automated and up to date with tax laws ensuring you won’t miss deductions or credits.
- See if you qualify to file for free – many tax software offer free tax filing based on complexity of your tax return, amount you made, and few other rules; IRS’s freefile initiative presents taxpayers with an opportunity to file taxes electronically for free; for more details, take a look at our previous post.
- Form W4 – It’s what comes along with a new job; this form tells the accounting department how to calculate your wages and amount to withhold for taxes; how you answer those questions will determine your monthly after-tax income; pay attentions to how many allowance you’re claiming (fewer allowances equal higher contribution) and whether or not you want to contribute additional amount towards taxes; in the end this is a choice between contributing more each paycheck or having a potential liability at tax time.
- Stay organized – This one is so obvious yet most people don’t follow that advice; I don’t need to elaborate on how difficult it is to find tax related documents not to mention receipts that are 12 months old; the faster you start organizing yourself the easier it will be before April 15 and those new organizational skills may even spill over to the other areas of your life.
- Don’t procrastinate – See stay organized and start early; this gives you an opportunity to correct things, get the necessary receipts, etc rather than barely making it by the deadline; additionally if you’re using a tax software you can save your progress and return later and the software typically increases in price as tax filing deadline approaches so in this case time is money.
- Federal and state taxes – When filing taxes the most important one is the federal one but don’t forget about state taxes; if you moved for work in the past year and happened to work in two or more states, you have to file taxes in each of those states separately; although many tax software allow you to file federal taxes for free, you will most likely have to pay to file state taxes.
- Don’t be in a hurry – Many people file early because they expect a refund but don’t just rush to get a check in your hands. Analyze the information to make sure you’ve claimed all possible deductions and didn’t leave any money on the table.