11 Things You Can Do Now to Prepare for April 17, 2018
As 2018 approaches, it’s time for wise investors to do a bit of tax planning.
For most people, that means setting up or contributing to a retirement account, gathering digital or hard-copy receipts for itemization, and thinking about all the ways that next year’s tax bill can be lower (or a refund can be bigger).
Of course, everyone’s tax situation is different, but the following 11 suggestions should apply to the vast majority of the taxpaying public in the U.S.
And yes, these are all actions that you can take right now in order to soften the blow come April 17, 2018:
Get organized before the holidays strike
Tax-filing time causes many headaches for people who are not organized. While organization alone will not reduce a tax bill, it will go a long way toward cutting the April deadline stress level. Taxpayers can start out by gathering everything they’ll need, like last year’s documents, donation receipts, and any other official forms that arrived in the mail or as attachments to financial correspondence.
For those who have stock and bond investments, or mortgage interest statements, it helps to include them along with the most vital tax documents. Investment records, 1099s, W-2s, receipts, mortgage statements, major-purchase receipts, last year’s tax forms, and similar items are good starting points for a comprehensive checklist.
Use the IRS website for downloading forms
Don’t expect to find hard-copy tax forms at the library or post office. Nowadays, people can get any tax form from the official IRS website, at www.irs.gov. The site offers a comprehensive catalog of tax tips, official rules and regulations, tips for easy filing, and an entire library of tax forms for every conceivable situation. There are also links to sites where taxpayers can obtain forms for their specific states.
Think about itemizing, even if it you never have before
It is so simple to take the standard deduction that many millions of taxpayers do so each year. However, many of them are eligible to itemize but just don’t want to go to the trouble of filling out the extra paperwork. In many cases, itemizing can save taxpayers many thousands of dollars and is definitely worth the time.
Contribute the maximum to your retirement plan if possible
Whether your employer offers a 401k or not, you have many options here. You can contribute to a traditional IRA or a Roth IRA. However, if you employer has a 401k, with or without matching, contribute as much to it as you possibly can afford. Matching plans are like getting a 100 percent return on your investment, immediately! The beauty of retirement contributions is that you can still make them up until tax filing time. So, don’t wait.
Know about IRA time limits
There is still plenty of time to contribute to retirement accounts. In fact, U.S. taxpayers have until April 17, 2018 to make a contribution to either a traditional or Roth IRA and still get the advantage of deductibility. Those who have SEP or Keogh plans are even luckier because they can file for an extension and have until Oct. 17, 2018 to fund their plans. Even though there are ways to delay contributions for tax purposes, it’s always a good idea to fund a plan as soon as possible; consumers get the full advantage of compounding by placing money in the account early.
Verify your identity with the IRS to prevent fraud and identity theft
Use the Identity Protection PIN that has been assigned to you. You should receive it in the mail if this is your first year to have one. If not, or if you don’t know what yours is, you can get it by verifying your identity at the IRS website, www.IRS.gov.
Claim the Earned Income Tax Credit (EITC) if you can:
The IRS says that only about 80 percent of eligible taxpayers claim their rightful EITC amount, if any at all. Be sure to check while filing and see if you can claim the credit. Typically, if you earn less than $53,000, you can claim it and receive a reduction on your tax bill.
Get your refund as quickly as possible
To get a refund fast, there are two things the IRS recommends: filing electronically and using direct deposit.
Find a reliable online e-file service
You can do your taxes the old-fashioned way but there are several online services that can handle all the complex situations and deductions with the stroke of a key or two. Turbo Tax and H&R Block are two of the best-known online filing systems, and both are able to e-file federal and state returns. Even taxpayers who don’t want to e-file can use them and then print out paper copies of their tax returns for mailing. Anyone who is new to tax filing, or who doesn’t understand the way the IRS calculates taxes due should look into one of the many online services. Many charge nothing to figure your taxes, and their computer algorithms rarely miss a possible deduction or line item.
Claim a home office deduction if possible
Recently, the IRS has allowed more home office deductions based upon a loosening of the laws pertaining to this age-old deduction. Under the new rules, even workers who have no fixed location where they do business can write off a portion of their home (or apartment) if they use it exclusively for administration and management of their business. Outcall massage therapists, consulting doctors, and repair technicians can avail themselves of the home office deduction.
The IRS uses a formula based on the square footage used exclusively for business purposes. In the past, people often avoided taking this deduction because they, wrongly, believed it was a sure way to get audited. Under the new rules, however, there are literally millions of work-at-home taxpayers and on-call professionals who take the home office deduction.
Use the IRS helpline
If you get stuck and don’t have a friendly accountant available, remember that the IRS has a help line (and they actually will assist you if you remember to call during off-peak hours). The number is 1-800-829-1040 for individuals, and 1-800-829-4933 for businesses. Before calling, have all you documents at hand and be ready to answer several identifying questions. The IRS helpline is open Monday through Friday from 7 a.m. to 7 p.m.
The agents are usually trained auditors or what the IRS calls “examiners,” employees who are training to be full-fledged auditors or higher level tax professionals. The biggest challenge is getting through during the month of April. But, if you are willing to call at 7 a.m., when the line opens, it should be easy to speak with someone who can help you with that nagging question you can’t resolve via a search engine.
Another helpful resource that many taxpayers overlook is the IRS website, located at www.IRS.gov. Those who criticize the site probably haven’t seen it for a while. The IRS has put a lot of effort into revamping what was once a nearly useless website. The new and improved version is well organized, easy to navigate and offers a massive database of commonly-asked tax questions.