As the new year approaches, it is once again time to think about the upcoming New Year by starting to prepare for tax season. Tax laws are constantly changing making it important to reevaluate your tax strategy annually to ensure you are not paying more to Uncle Sam than you have to. Here we look at 6 tax tips for filers to manage their finances in the best way possible to lower tax liabilities.
- Get Organized – If you do not have a system in place which allows you to organize tax-related records needed during tax time throughout the year, you may want to think about doing so in 2011. By keeping the documents needed to file your tax return in order as it comes in, you can save yourself a lot of time (and potentially money) when the time comes to file your taxes. Regardless of whether or not you have been organized throughout the year, now is the time to start gathering necessary documents. You will need last year’s tax return as well as proof of income, expenses, credits, and deductions to which you are entitled. Don’t wait until the last minute to do this as you may have to track down missing documentation.
- Help Your Favorite Charity – The holiday season has a way of reminding us of all the things for which we should be grateful. With this in mind, donating to a charity of your choice will not only help the cause and make you feel good- donations can also be used to lower tax liabilities. It is a win-win for all parties. Make sure you get an itemized receipt if you intend to use your donation as a tax deduction.
- Focus On Savings – Contributions to retirement accounts must generally be made by April 15th (April 18th in 2011) in order to count for the previous tax year. If your contributions are tax-deductible, making out your contributions will benefit you in two ways- lowering your taxable income and more time for compounding growth.
- Determine If You Need Help Filing – Filers who have basic and uncomplicated tax returns often prepare and file their tax returns on their own. Others find comfort in letting a tax professional take charge. Make the decision early as to who will be preparing your tax return so you have plenty of time to get your documentation in order.
- Double Check Return Before Filing – Filers are responsible for information reported on their tax return regardless of who prepared that return. For this reason, you must double-check, even triple check your return for tax mistakes before filing to ensure all of the information is correct.
- File Correctly – The best way to file your tax return is electronic. There are many benefits to filing electronically including the ability to check the status of your return after filing. Filers anticipating a refund will receive that refund more quickly by filing electronically and choosing direct deposit. Individuals who have to pay in can still file their return electronically at any time as long as they submit payment and 104-V Form by the filing deadline. It is imperative that all tax returns (or requests for extension) are filed by the deadline.
Tax season becomes a little less intimidating when you follow the tips listed here. The more organized and informed a filer is, the less likely they will find themselves in hot water with the IRS.