How to Get Ready for Tax Season

Tax Forms

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 (which in 2017 is going to be April 18th). 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

 

3 Reasons Your Tax Refund Might Not Be As Big As You’re Expecting

09ba4dd1-bbe3-4f1f-9400-940dc6df347fEveryone tells you not to plan on having a tax refund. If you’re living paycheck-to-paycheck, though, you know where every dollar is going. You might be counting on that money to give you the breathing space you need.

Even if you’re a little further ahead than that, you may still have made plans for your tax refund. You might be planning to pay off a credit card from the holidays or hoping to put a down payment on a car. You might just be hoping to take a little vacation over spring break!

Whatever your plans for the money, it’s a good idea to temper your expectations. Unfortunately, you can’t count on the same tax refund you got last year. Here’s why.

1. Student loan garnishments. 

If you’re behind on your student loans, you might not see much of your refund. If you don’t have much of an income, it’s easy to get behind and it’s hard to catch up. Student loan companies know that, for people with minimal income, tax refunds are a source of a big chunk of money. Also, since it’s not a regular source of income, the rules regarding garnishment are more lenient. Ordinarily, creditors are only allowed to take 15% of your discretionary income if you have one loan, or 25% if you have multiple loans. For a tax refund, the Department of Education can instruct the IRS to apply the full amount of any tax refund you’re due to the balance of your loan.

Even if you’re paid off in full, it might be wise to check with your spouse. This process can also apply to your refund for his or her defaulted student loans. As far as the IRS is concerned, you’re one taxpayer with one set of obligations.

This process can apply to federal student loans, federally subsidized loans and some private loans. You’ll receive a notice of proposed offset from the IRS. You have 65 days from receipt of the notice to object to the offset. Deferments can be provided for up to 3 years for economic hardship and unemployment. They may be provided indefinitely for individuals seeking an advanced degree or for people with disabilities.

It’s also possible the “loan” may just be a paperwork error. If you’ve unenrolled from classes but haven’t yet received a repayment from the school, for instance, you might get your refund back with a short letter. The notice of referral will provide you instructions to request a review.

2. You made more money.

Usually, getting a raise is something to celebrate. If you got one this year, that’s good news for your career future. It’s less good news for your refund. The refund is the difference between what you paid in taxes and what you ended up owing. Your taxes are withheld from your paychecks assuming they stay the same all year. If you got a raise in June, then you were effectively under-withholding for the first half of the year.

Beyond the difference in payment, you may find your raise puts you just above the threshold for credit programs. Credits like the Earned Income Tax Credit (EITC) have income eligibility requirements. If you made more money this year than you did last year, you may not qualify. The same is true for subsidized insurance premiums through the Affordable Care Act (Obamacare). If your income changed after you obtained coverage, you may have to hand back a part of that subsidy.

The EITC is fairly significant, particularly if you have kids. It may be worth your time to look for other deductions you can take to get your gross income under the threshold. Consider working with a professional tax preparer, too.

3. You were the victim of identity theft.

The past few years have seen an increase in tax returns filed fraudulently on behalf of victims of identity theft. A crook uses your Social Security Number and fabricates financial information to get a hefty tax refund, then cashes the check. You’re not only out your tax refund, but also may be facing criminal charges for the phony info on “your” return.

With cuts to the IRS budget this year, its enforcement and investigation of these crimes has dropped. You should contact the IRS immediately if you receive notice that more than one tax return was filed using your Social Security number or if you are issued a W-2 (an income statement report from your employer) by an employer you don’t recognize. These are red flags that someone is fraudulently using your identity.

The FTC recommends you contact the IRS’s Specialized Protection Unit at 1-800-908-4490. You should also prepare proof of your identity, like a copy of your drivers’ license, Social Security card, or passport. The IRS has a form, IRS ID Theft Affidavit Form 14039, that will start the investigative process. Recovering from this crime will take time, but you will get the refund you’re due.

To prevent identity theft, check out First Financial’s ID Theft Protection products – with our Fully Managed Identity Recovery services, you don’t need to worry. A professional Recovery Advocate will do the work on your behalf, based on a plan that you approve. To learn more about our ID Theft Protection products, click here and enroll today!

Article source courtesy of CUContent.com.