Does your preparation for tax day start with a trip to the liquor store, or perhaps a one-way ticket to Costa Rica? Taxes are unpleasant, but drinking or fleeing the country is not the answer. Tackle your taxes head-on with solid preparation, and the experience may turn out to be more pleasant than you thought it would be. Here are a few tips to help you with your tax preparation and increase your chances of getting the biggest refund you deserve.
1. Start Immediately – Procrastination is just going to make things worse. Pressure will increase as tax-filing day draws nearer, and it is more likely that you will have problems finding vital paperwork or will make mistakes filling out your form. Get started on your taxes as early as you can and gather some positive momentum.
2. Organize Your Paperwork – Hopefully you have been storing and organizing important tax documents and necessary receipts throughout the year — but if so, you probably would not be reading an article about how to prepare for tax day.
Start by gathering the basic tax documents. Last year's tax return, W-2 forms, 1099-MISC forms for any independent contracting work, other 1099s forms for things like bank accounts and brokerage statements, and 1095 forms to prove health insurance status. After securing all the basic documents, move on to receipts for all itemized deductions. Speaking of deductions....
3. Explore Deductions – You may not even realize how many itemized tax deductions that you have, and simply assume the standard deduction is the best choice. Review the instructions for Schedule A and IRS Publication 529, "Miscellaneous Deductions" to see all the options available to you.
Do not forget about "above-the-line" deductions like educator expenses and health savings account (HSA) deductions. You can take those deductions whether you itemize or not.
4. Max Out Your Retirement Contributions – Even though it is now 2016, you can still make contributions to your IRA until the tax-filing deadline in April and credit those contributions to your 2015 taxes — as long as your contributions for the year stay within the $5,500 limit ($6,500 if you are over fifty years old). Schedule your retirement contributions in a way that brings you the greatest tax advantage.
5. Consider Tax-Preparation Software – Do you prefer to file your own taxes? You may want to consider tax preparation software to see if it can help you avoid potential errors and identify other sources of deductions. Software is available in a wide range of capacities that can match the complexity of your tax situation, and prices are generally reasonable. If you made below $60,000 last year, you can prepare your taxes for free using the Free File tax preparation software available on the IRS website.
6. Seek Professional Assistance – Complex tax situations are best left to the professionals. You may be able to do your own taxes adequately, but a competent tax professional may be able to find you enough refunds to pay for their services and then some — and even if they cannot, you can enjoy greater peace of mind by not having to struggle through the tax forms yourself.
Research a tax professional carefully, and do not just choose one based on advertising (certainly not on promises of the highest refunds). Check their certifications, experience, and online reviews of their services. Note that lawyers and accountants may be qualified to sign tax returns without having any experience in doing so.
What's that smell? It is the sweet smell of successful preparation for tax day. That sure beats dealing with hangovers, or starting your new life in Central America.