Tax season is quickly approaching, and although it may be the last thing on your mind, now is the perfect time to start filling out that 1040 form. This can be a stressful time of year for many, regardless of whether you pay for tax services or are a self-preparer.
By completing these three simple steps, you can make your life much easier – and potentially save money – when it’s time to file taxes.
Use last year’s tax return
Doing a thorough and complete review of your tax return from last year could potentially identify overlooked deductions or credits that might reduce your overall tax liability, taxable income not reported or errors that would require the submission of an amended tax return.
If you find any missed credits, deductions or errors, make sure to correct these oversights as you prepare your tax return for this year. Don’t miss out on money that you are eligible for two years in a row.
Determine if you will contribute to your retirement
Were you aware that you may contribute to certain accounts up until April 15 and still apply that contribution to the previous tax year? This is a great option for all the procrastinators out there. Your retirement and education accounts are possible options for this. By contributing to tax-deductible accounts, you can make the most of contribution limits and reduce the amount of tax you will owe for the previous year. These accounts do have income limits, so just make sure you’re eligible to contribute.
Claim all last-minute deductions
Make sure you claim all deductions available to you – especially the lesser-known options. For example, any points you pay to refinance your home can be deducted on a monthly basis over the life of the new loan. You also can get credit for energy-saving home improvements, such as installing solar water heaters, wind turbines or geothermal heat pumps. Deductions can also potentially be made for student loans, old points on refinancing, educator expenses, casualties and disasters, and charitable non-cash contributions. It is also important to remember you must obtain receipts for cash and non-cash donations.
Many people fail to take advantage of what might add up to savings on their taxes because of IRS rules or lack of knowledge about deductibles. By planning ahead and getting organized for this tax season, you are more likely to maximize your savings.
Photo courtesy 401(k) 2013