Tax Time Organizing

This blog entry was written in collaboration with Alfred Katzin, CPA and is intended for informational and organizational purposes only.  It is not intended to be used as tax advice.

Good organization may not cut your taxes, but it will cut down on your stress at tax time and may even result in financial rewards. To ensure that your taxes are ready to be filed on April 15th, consider these tips for tax time organizing.

Step One: Organize Your Records

For many, the biggest hassle at tax time is compiling all of the necessary documentation. This includes last year’s tax return, this year’s W-2s and 1099s, receipts and so on.

You may want to consider using a personal finance software program throughout the year, so you have easy access to all relevant information at tax time.

How do you get started?  Decide if you are going to use a professional tax return preparer or if you want to prepare your own return using one of the readily available tax return programs or using the IRS web site IRS.gov.  In any event, the following steps will be helpful.

  • Prepare a tax checklist to help you gather all the tax documents you’ll need to complete your tax return.
  • Keep all the information that comes in the mail in January, such as   W-2s, 1099s and mortgage interest statements. Be careful not to throw out any tax-related documents, even if they don’t look important.
  • Collect receipts and information that you have saved during the year.
  • Group similar documents together.
  • Make sure you know the price you paid for any stocks or funds you have sold. If you don’t, call your broker before you start to prepare your tax return. Know the details on income from rental properties. Don’t assume that your tax-free municipal bonds are completely free of taxes. Having this type of information at your fingertips will save you another trip through your files.

Step Two: File Your Taxes

You can file your tax return on paper or with an electronic filing.  Electronic filing works best if you expect a tax refund. Because the IRS processes electronic returns faster than paper ones, you can expect to get your refund three to six weeks earlier. If you have all your documents in order, you can file electronically in January.  If you have your refund deposited directly into your bank account, the waiting time is cut down more.

There are other advantages to e-filing besides a quick refund. The IRS checks your return to make sure that it is complete, which increases your chances of filing an accurate return. Less than one percent of electronic returns have errors, compared with 20 percent of paper returns. The IRS also acknowledges that it received your return, a courtesy you don’t get even if you send your paper return by certified mail. That helps you protect yourself from the interest and penalties that accrue if your paper return gets lost.

If you owe money, you can file electronically and then wait until the federal tax filing deadline to send in a check along with Form 1040-V. You may be able to pay with a credit card or through a direct debit.

  • With a credit card, expect to pay a service charge of as much as 2.5 percent.
  • With direct debit, you may delay the debiting of your bank account until the actual filing deadline.

Step Three: Protect Yourself if You Can’t File on Time

  • If you can’t finish your return on time, Form 4868 gives you a six-month extension of the filing deadline until October 15, 2015. On the form, you need to make a reasonable estimate of your tax liability for 2014 and pay any balance due with your request.
  • Requesting an extension in a timely manner is especially important if you end up owing tax to the IRS. If you file and pay late, the IRS can slap you with a late-filing penalty of 4.5 percent per month of the tax owed and a late-payment penalty of 0.5 percent a month of the tax due. The maximum late filing penalty is 22.5 percent and the late-payment penalty tops out at 25 percent. By filing Form 4868, you stop the clock running on the costly late-filing penalty.

 

 

 

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