With all of the forms to fill out and deductions to apply for, filing taxes can be very tricky. In fact, many people make mistakes on their tax returns every year. While it is not necessary to know everything there is to know about taxes in order to do them yourself, it is important to learn as much as you can, so you can keep as much of your money as possible.
Here are five tax tips you should know going into tax season.
1. Know Which Product You Need
You have probably seen commercials on television that advertise websites where you can file your taxes for free. What you may not realise, however, is that these services are usually only for people with the most basic tax situations. If you own a home or have charitable or medical deductions, you will need to choose a more advanced product.
2. Research Changes in Tax Law
Tax law changes every year, and tax policies that did not apply to you in past years may apply to you in future years as your financial condition changes. If you choose to do your taxes yourself, be sure to research changes in tax law and possible deductions that you might qualify for before you begin. Also, be sure that you only take deductions you actually qualify for so you will be protected if you are audited.
3. Accelerate or Defer Income
If your finances change from one year to the next, it may make financial sense to accelerate or defer your income. For example, you may ask your boss to delay paying you a bonus until January or you may work a little less the last few weeks of the year if the additional money could put you into a higher tax bracket, causing the taxes on those last few payments to be a little more substantial.
4. Accelerate or Defer Deductions
Likewise, there are times when you might want to accelerate or defer deductions to get the maximum benefit. For example, if you have a large amount of medical bills this year, but do not plan on having many next year, you may make the last few payments early so they go on this year’s tax return instead of next.
5. Never Guess
Most importantly, never guess on your tax returns. If you have any questions, research reputable internet sites or contact a tax professional. If you are not sure about a specific monetary amount that you need, take the time to look it up. If you are not sure if you qualify for a deduction, research the deduction thoroughly. While the IRS understands that some people will accidentally make an occasional mistake on a tax return, they do not look kindly on people trying to avoid paying the taxes they should.
Tax time is never fun, but making tax mistakes will only cause you additional misery in the future. Use these five tips to get your taxes done right the first time.
Abi has several qualifications in finance and likes to offer advice to people struggling with their tax returns. She recommends Drummond Annual Accounts & Tax Returns in Plymouth, Devon for expert service and advice.