Tag Archives: Taxes

How to Make Next Year’s Tax Season Stress-Free

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Tax season just ended a couple weeks ago, and while preparing for next year’s tax return is probably the last thing you want to think about – it’s important to stay organized and make any adjustments for next year now, while it’s still fresh on your mind. Even though April 15th comes around every year like clockwork, it tends to sneak up and turn into a last-minute scramble for many of us. Here are a few tips on how to prepare for next year’s tax season now, to make things less stressful and more manageable later.

Make a Tax-Related Documents Checklist

An easy way to prepare for tax season is to make a simple checklist of the information and documents you will need to receive before you file. A checklist will help ensure you file accurately and keep an eye on what’s still outstanding.

Below are some examples of documents you might need to file your taxes next year that you can start putting aside this year, depending on your situation:

  • Documents related to childcare or dependent care expenses.
  • Receipts for books, tuition, and other education expenses if you’re a student or teacher.
  • Medical and prescription receipts.
  • Charity donation receipts or proof of payment.

Check out this IRS webpage on common documents and tax forms you might need to file your taxes. It’s important to remember that this isn’t an all-inclusive list and not all listed documents and forms will apply to everyone.

Decide How to Organize Your Tax Records

Are you more of a physical or digital recordkeeper? Choosing a method for organizing your tax-related documents makes it more likely that you will organize documents as you receive them.

A few options for organizing your tax-related documents can be a physical folder, digital folder on your device, or an accordion folder – especially if you have many categories of documents.

Track Income and Expenses Monthly

Tracking income and expenses is especially important if you do side gig or freelance work or own a small business – self-employment income is not the same as income reported on a W-2. Tracking can be done with a spreadsheet, a budgeting app, or something as simple as the notes app on your phone. Setting time aside to track income and expenses monthly can help you avoid surprises when it’s time to file and assist you in planning ahead.

Keep Track of Life Changes That Could Impact Taxes

Don’t forget about any career changes, getting married, or your first-time home purchase come tax time! Aside from changes to legislation, life events are one of the main causes of impacts to your tax outcome. They can affect your refund or how much you may owe the IRS.

Here are some life events that might impact your tax outcome:

  • Getting married
  • Growing your family
  • Starting a new career or experiencing job loss
  • Buying or selling a home
  • Retiring

The IRS has resources that explain the potential tax impact of various life events.

Create a Plan if You’re Expecting a Refund

Having a plan for a tax refund before you receive it is an important and often overlooked aspect of tax season preparation. Without a plan, it’s common for tax refunds to be spent on impulse purchases or go to everyday spending as opposed to long-term financial goals. Having a plan for any funds you get back at tax time will help you know exactly what to do when the refund arrives.

If you want to make the most of your refund by saving, making a large purchase, or planning for your financial future – First Financial is here to help!

Benefits of Preparing Early

There are numerous benefits to preparing for tax season early:

  • Stress Relief: Tax season stress usually comes from feeling unprepared or rushed, especially as the deadline gets closer. Getting started ahead of time can help you file with confidence – and not second-guessing whether you filed all your documents.
  • Avoiding Errors: Rushing through your taxes can lead to errors – such as skipped documents, incorrect numbers, or even missed deductions.
  • More Time to Prepare: Being ready to file early gives you time to plan. Especially in the case of owing money – if you know you usually owe each year, you can start putting aside some money into a savings account all throughout the rest of this year to avoid scrambling at the last-minute next year.

With a few smart habits, you can make sure that tax season doesn’t catch you off guard next year.

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Be Aware of Tax Scams this Tax Season

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The Internal Revenue Service (IRS) recently announced that the 2020 federal income tax filing deadline for individuals would be extended from April 15th to May 17th in response to the ongoing recovery efforts surrounding the COVID-19 pandemic, and to help provide taxpayers some ongoing relief.

In the midst of tax season, it’s important to be reminded that there is often an increase of fraud attempts and tax scams. Annually, the IRS shares and emphasizes certain scams that may be of risk to taxpayers. This year, scams related to Coronavirus tax relief continue to target taxpayers.

Here are a few things to be on the lookout for this tax season, as extensions can create confusion and make tax payers more susceptible to fraud attempts. The IRS recently announced the following to be aware of for the 2021 tax filing season:

  • Phishing Scams: Taxpayers should be alert to potential fake emails, texts, phone calls, or websites looking to steal their personal information.
  • Phone Scams (Vishing):  These scam phone calls work hard to instill a sense of urgency, and often threaten arrest, deportation, or some type of retaliation if a tax bill is left unpaid.  
  • Charity Scams: These schemes share bogus information about a charity to trick people into sending money or into providing personal information. This is often attempted with a fake website, using names similar to legitimate charities, or unsolicited communication. 
  • Social Media Scams: Social media scams frequently use events (lately COVID-19) to trick people into disclosing personal information. Typically, this involves convincing a potential victim they are dealing with a person they trust via email, text, or social media direct messaging.
  • Refund Theft Scams: Refund and Economic Impact Payments (EIP) as provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act have been targeted in recent scams with identity theft and filing false tax returns to divert funds to the wrong address or bank account.
  • Elder Fraud: Seniors are more likely to be targeted and victimized by scammers due to unfamiliarity or uncertainty on how to respond across digital channels. 
  • Offer in Compromise (OIC) Scams: Misleading tax debt resolution companies can exaggerate chances to settle tax debt through an Offer in Compromise (OIC) and submit false applications for candidates. OIC offers are available for a bill reduction, but taxpayers must typically meet very specific criteria under law to qualify.
  • Payroll and HR Scams: Phishing scams are designed to steal W-2 and other tax information. This scheme has increased with many businesses still closed and employees working from home due to COVID-19. W-2 forms contain sensitive information and are highly valuable for identity thieves.
  • Ransomware Scams: This cybercrime targets human and technical weaknesses to infect a potential victim’s computer, network, or server. Once infected, ransomware looks for and locks critical or sensitive data with its own encryption. 

Consider these preventative tips to keep your personal and financial information safe this tax season:

  • Be cautious of communication: Communication requesting personal or financial information – tax related or otherwise, should be treated with caution. The IRS and state tax authorities will never reach out by phone, email, text, or social media.
  • Pay attention to how money is requested: The IRS does not require that taxes or bills be paid with a prepaid/reloadable debit card, gift card, or money wires through services like Western Union or MoneyGram.
  • Report threatening messages: Calls demanding immediate payment or threatening legal action are more than likely scam attempts. The IRS or state of residence will not call to discuss taxes you owe without first mailing you an official bill.
  • Don’t open attachments or click on links: This is especially true if you have suspicions about the communication source you received, which may contain a malicious code or virus that will infect your device. Cybercriminals will often use a phishing email to trick a potential victim into opening a link or an attachment containing ransomware.
  • Be wary of rejected file requests due to duplication: If an e-filed return is rejected because a duplicate EIN/SSN is already on file with the IRS, or an unexpected receipt of a tax transcript doesn’t correspond to anything previously submitted – it may be a warning sign of identity theft. 

If a tax scam is suspected, report it to your state authorities and/or the Federal Trade Commission here.

Find out more about tax scams from the IRS website here.

Think First because There’s Harm In Not Knowing!

Article Source: CUInsight.com

3 Reasons to File Your Taxes Sooner Rather Than Later

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The Federal tax deadline has been extended to May 17, 2021. If you are planning on waiting until a lot closer to that day to get your taxes done, here are three reasons you should really get moving and file your taxes as soon as possible.

Sooner is better regardless of the outcome: The sooner you file, the sooner you’ll get money back if you are getting a refund. If 2020 hit you hard financially, that refund may be something you’ve been banking on. And if you get the opposite result and owe the government money, you’ll have more time to save up and pay. You can’t go wrong filing as early as possible.

You’ll reduce your stress: Filing tax paperwork was probably simple when you were in your 20s. Once life gets more complicated, it’s not quite as easy or quick to file. If you know your taxes will be more difficult than in past years, lessen the stress it might cause by getting started as soon as you have your W-2. Filing early can prevent Tax Day from being a source of stress.

It’ll be a smoother process: Not only is the IRS less busy at the beginning of the year, but tax professionals typically are as well. Keep this important detail in mind if you’re not filing on your own. If you file online it won’t be a big deal, but if you need a tax professional to help sort you out, you’ll be glad you got started earlier. The closer you get to the tax deadline, the longer the whole process will take (as well as you probably won’t be the only last minute client).

The moral of the story: Start preparing your tax documents and file as soon as possible!

Article Source: CUInsight.com

Reasons Not to File Your Taxes Late

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Tax Day was July 15th this year, after a 3 month extension due to COVID-19. If you still haven’t filed your 2019 taxes, you’ll need to contact the IRS for an extension – as soon as possible. You can find out more information and how to file for an extension at IRS.gov

Here are several reasons why it’s important to try to always file your taxes well in advance of the Tax Day deadline:

Possible Penalty Fees – Did you owe the IRS and your payment arrived late or got lost in the mail? You could be charged interest on everything you owe for late payments. Be sure to pay on time if you owe the government money to avoid any and all late fees.

You’ll Be Waiting for Your Refund – If you file late and are getting a tax refund this year, it’s basically withholding your own money from yourself.

You May Have Trouble Paying – If you owe money on your taxes, and it’s in the thousands – you unfortunately still need to pay by Tax Day. Filing late doesn’t give you any extra time to come up with your payment.

Underestimating the Time it Takes – Don’t underestimate the amount of time it takes to file your taxes, especially if you had a life change (marriage, new baby, changed jobs, bought a home) within the past year. It’s important to give yourself ample time before the filing deadline.

Not All Tax Forms May Be Available – It’s much easier these days with tax forms available online, but which ones do you need and how do you fill them out? Are you really sure you know exactly what’s needed and that it will be available if you need it right away? This requires advanced planning.

You Could Need More Information – You almost never have all the documents ready when you file your taxes. What happens if you need to locate an important form (like your W-2) or speak to your accountant, hours before the filing deadline?

Unexpected Things Happen – You may get sick or an emergency may come up. Also, what if you have a technology failure like your printer stops working or your computer won’t turn on? It’s always best to prepare and file early.

You Might Overpay for Advice – Sometimes, requesting last minute advice and service will cost you more. Plus if you’re in a time crunch, you won’t have extra time to find a discount or deal on tax services.

If you do end up filing late, here are some tips:

File for an Extension – If you can’t get your taxes filed by Tax Day, there’s always the option to file for an extension. The down side is that if you owe the government money, you’re still responsible for paying the estimated taxes when you file for the extension. In other words, it’s an extension on filing your taxes, not on paying what you owe. What happens if you can’t pay now? Failing to file for an extension will result in a penalty on top of the bill you already have. The IRS often offers an option to set up a payment installment plan. You can get started online here.

File Your Taxes Online – Filing online is faster and easier, especially if you’re running late. If you’ve never filed your taxes online before, a quick search will lead you to various tax prep businesses that usually offer free e-file along with paid services (like having your return reviewed by a tax professional). If your gross earnings fall under $69,000, you can also use the IRS Free File Program. E-filing requires an electronic pin you’ll use for e-signing, and also – don’t forget to save digital and print copies of your taxes for your records.

Watch for Mistakes – You’re more likely to make mistakes when you’re in a hurry to meet a deadline. The following mistakes are common and costly: Missed deductions, incorrect account or social security numbers, and forgetting to sign and date your return.

The moral of the story: File early next year!

 

Article Source: David Ning for Moneyning.com

How to Prepare for Tax Season

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We’re in the midst of prime tax season. Have you filed your taxes yet? If not, or if you are unsure of how to be best prepared – keep reading! Being organized can help you reach your financial goals as well as make the filing process easier for both you and your tax professional.

What items should you bring with you when you have your taxes done?

  • A valid photo ID
  • A social security card or verification letter, or individual TIN (Taxpayer Identification Number) for all family members.
  • W-2 forms for all jobs worked the previous year
  • Form 1099-G for unemployment compensation, if applicable
  • Any childcare provider information from the previous year paid (name, address, tax ID number, and total paid).
  • A copy of last year’s state and federal tax returns
  • Any banking/mortgage interest statements, federal loan documents, retirement statements, and organizations you made charitable donations to with the amount donated.
  • Form 1095-A, B, or C and any affordable health care statements or health insurance exemption certificates.
  • Bank account information and a voided check (for receiving your return via direct deposit).

If you are married and filing jointly with your spouse, you will want to make sure you and your spouse are both present at the appointment so you can each sign your joint return. Depending upon your individual financial situation, there may be other documents you will need to bring with you. If you have questions about other items you think you may need to bring to your annual tax appointment, contact your tax preparer in advance.

How do you make the most of your tax return?

  • If you are getting a return back, it’s a good idea to have it deposited to your bank account with direct deposit. There is no cost to do so, it arrives faster than a check, and will be right there in your bank account for when you need it.
  • It’s always a good idea to save for the future – every little bit helps!
  • Do you have outstanding revolving credit card debt? Pay it down with this year’s tax return.
  • Another good use of your tax return is to save for retirement in an IRA account.

If you have additional questions, it’s a good idea to consult with your tax professional during your appointment. Staying organized and prepared is the best way to get through tax season, and should you receive a return – saving the money for a rainy day, your financial future, or to pay off debt is never a bad idea. Happy filing!

Article Source: Consumer Financial Protection Bureau

How to Get Ready for Tax Season

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Make a list of major life changes.

Getting married, having a baby, buying a house, or a death in the family this year means that your tax situation is probably going to change. Make sure you fully understand how these events are going to affect you now to offset any tax increases that you may experience.

Make a tax folder.

Shortly after the first of year all of your tax documents are going to start rolling in. When they do, put them all into one place. Even before those W-2s or 1099s show up, gather all of the receipts from your tax-deductible expenses and donations.

Decide if you are going to go it alone.

If you are going to file yourself, the best time to get a deal on the updated tax software is right after the first of the year. The longer you wait, they more expensive it could be, so make sure you aren’t missing out. If you are going to use an accountant, you should be scheduling an appointment now.

First Financial members get discounts on tax software from TurboTax. Get started today!

Know how to file for an extension.

Sometimes it can be difficult to find all the right documents before the deadline. All you need to do to receive an extension is fill out and submit Form 4868, though the IRS will not be ready to process these forms until March at the earliest.

Educate yourself.

Last year a NerdWallet survey found that the average American scores a 51% on personal finance questions related to US federal income tax returns. Most of the questions missed had to do with how retirement accounts, college savings and healthcare can affect your tax return. Take some time to fully understand all these factors so you can be sure to get your largest return.

Article Source: Tyler Atwell for CUInsight.com