Taxes Taxes Taxes
Taxes are due this year on Tuesday, April 18th 2017!
As the annual time approaches to file our taxes, we need to gather all of our relevant information. The advantage that we have now is much of that information is available digitally—you can find it online. W-2s must be sent out by the end of January, and by the middle of February you should be receiving 1099s. The 1099s have your dividends and your interest, along with any contract labor. If you had a retirement account, remember that you don’t have to pay any taxes on the dividends or the capital gains in a retirement account. But, if you did take distributions from the retirement account, you’ll get something called a 1099-R. So you need to gather all of that paperwork—and again, much of it is available online which makes it very easy—but you need to go back and look at your tax returns from last year. What’s the same? What has changed? Do you have different income sources? With those W-2s…do you have more than one job? Make sure you get all of the paperwork together to get ready to file your taxes.
Then, watch out for those other deductions if you do file that report. You may track them in a notebook. Keep your receipts. (You can pop them in a shoebox.) With smartphones, a great thing to do is just snap pictures on your phone of those receipts (remember to back up your phone so these aren’t lost!) or take a note as you go along to track all of those items to make it easier. That’s the real secret with your taxes. If you keep up with the paperwork all along, it’s very simple.
You don’t need to keep all of your receipts for every item you purchase during the year. If you have a business or a business on the side, you need to track all of the receipts related to that business. Also, if you make donations, you need to have verification of all those donations. You want to make sure you take advantage of every deduction that’s available. Yes, we want to pay our taxes, but we want to pay as little as we possibly can. Other important deductions are related to large medical expenses, IRA contributions, education/tuition expenses, moving expenses and more!
If you are filing your taxes yourself, there are many online software solutions, such as TurboTax or H&R Block, that can walk you through the process. Generally, filing a simple return will be free, but if you have complicating factors that require extra assistance, they may charge. These systems may also charge if you file a state return through them. If you do use one of these systems, you may be able to get all of the information you need from them to make your filing, and make the actual filing yourself without paying.
Many people are filing online now through e-file. We have many software packages that you can do your taxes through. Of course, you have to purchase them. The IRS offers ‘Free-File’ for families making below $64,000. You can go through the IRS website (www.irs.gov), and there’s a button for ‘Free File’ to walk you through filing their taxes online at no cost. Free-File will open at 11:00 a.m. Eastern Time January 23, 2017 (https://www.irs.gov/uac/free-file-do-your-federal-taxes-for-free). You can go through that system even if your income may be above the limit, get the forms that you need and fill the forms out. Then you submit them the old fashioned way.
There are also programs in place to help low-income taxpayers file accurate returns. Through the IRS there is a system called VITA (Volunteer Income Tax Assistance) which is volunteer tax assistance for families earning below a certain level of income (currently $54,000 or less). You can go through the website and use the Locator Tool to find a location nearest to you (or phone 800-906-9887). There is also a Locator Tool to find an AARP Tax-Aide location close to you (or phone 888-227-7669). If you’d prefer, you may call 211 which is actually the United Way and tell them your zip code and they will tell you the nearest office to go to get some assistance (https://www.irs.gov/individuals/free-tax-return-preparation-for-you-by-volunteers).
While I encourage everyone to try filing their own taxes at least once (it's not that hard!), some people would rather get the help. Around this time you will no doubt see all sorts of pop-up tax preparers. Beware of these fly-by-night operations. There are actually no mandatory qualifications required to prepare taxes, so stick with a more reputable shop or a CPA. A CPA is a Certified Public Accountant. They are highly qualified and licensed. They have to know all of the rules and regulations. They may be more expensive than other types of tax preparers but will be especially valuable if you have complicated returns or need complex tax planning and advice.
If you are getting a refund, the best option is direct deposit (https://www.irs.gov/individuals/get-your-refund-faster-tell-irs-to-direct-deposit-your-refund-to-one-two-or-three-accounts), and there is no charge for that. It’s wonderful. You put your banking information on your filing and the refund is deposited directly into your local bank account! Don’t spend it all at once though - try to save at least half of it. And get ready for the next year. Most people tend to spend all of it, so this is one of the rare times when you have a lump sum in your hands. Go ahead and enjoy half of it, but take half of it and put it in a good savings account.
It is also possible to get a refund by check or as a pre-loaded debit card, but direct deposit is the best method.
If you owe more taxes, the best option is to write a check or get a money order. While you can pay by debit or credit card, these are not ideal. There are extra fees involved with both options, but the IRS website does have details if you insist.
And don’t forget those IRA contributions. Those are also due by April 18th. The annual limit varies depending on the year, so check the limit. (2016’s annual limit was $5,500 for those under 50 with an additional $1,000 for those 50 and over.) The question usually is: Should you do a Roth IRA or a Traditional IRA? Well, check with your CPA. A Traditional IRA can lower your tax bill. So, it’s better to pay yourself than pay the IRS. With the Roth IRA, you don’t get the tax break now, but it will lower your future tax bill. There are some income limits for those. These limits vary depending upon the year, so check the limit. These limits are listed on the IRS website, or you can check with your CPA or tax preparer.
The IRS has a smartphone app (IRS2Go). So if you’ve already filed, you can check on your refund status, you can get tax tips, even get some of your very own tax records through that app.
Our 2017 deadline is April 18th. If you file an extension—you can do that—it requires a payment. So you have to send the form in along with the payment that you expect to make.
If you'd prefer to watch Nancy's segments from Midday Money on WLBT instead, where she gives this information, then you're in luck! The videos from over the years are all below. Enjoy!
February 5, 2015: Tax Time
March 13, 2014: Gathering Forms
February 14, 2013: Tax Time!
February 28, 2013: Tax Take Two
February 3, 2011: Tax Time
April 15, 2013: Tax Day Tips