Tax season is just around the corner, and it’s not too late to try out some tax tips and tricks that can help ease the process and even reduce how much money you owe to the IRS. The IRS starts accepting tax filings on January 28th, 2020. They will stop accepting “normal” filings on April 15th.
For most of the tax tips listed below, you will want to implement them before the end of the year on December 31st for them to count in your favor.
So, what can you do now to help prepare for filing your 2019 taxes?
Practice Online Safety
First and foremost, you will want to make sure everything you do online with your tax information is done safely. That means ensuring that you’re using a secure password with online tax software and that you are not setting yourself up for scams.
During tax season, scammers capitalize on the chaos by sending out emails and calls pretending to be the IRS. Know that the IRS will never reach out to you via phone and will prefer sending you important correspondence via mail. With that being said, your mailing information must be up-to-date in the IRS system.
Don’t Place Expectations On Your Return
While the thought of a hefty tax return is exciting, you shouldn’t allow this to raise your expectations as to the amount of your return or the date you’ll receive it. Several factors can affect your return, most notably, any errors that occur.
To prevent errors, it’s highly recommended to file your tax returns electronically. Tax software can auto-fill many forms and can run error checks before actually sending your information to the IRS. Any errors that are not caught will prompt a letter from the IRS requesting corrections. Corrections may cause a change in the amount you owe or receive, as well as increase the time it takes to receive payment.
Additionally, factors outside of your control can affect tax returns. An example is the government shutdown that occurred in 2018, which stalled some payments by about two weeks.
Assuming all goes well, the IRS usually disburses checks within 21 days of filing. Direct Deposits are quicker and more secure than requesting a mailed check.
Organize Your Documents
Throughout the year, you should keep a record of all relevant documents pertaining to taxes. These include last year’s tax returns, W2s, 1099s, any receipts or statements for deductions, and tax information from your stockbroker.
Search online for tax checklists, or predefined lists that you can use as a reference when compiling your documents. Have all your documents in order by the time you start filing to ease the process and reduce errors.
Ways To Save Money On Taxes
There are several legal tricks that people use all the time to maximize their tax returns and save money over time. Here is a list of tax tips that can be implemented now or in the future.
Contribute to your retirement fund. If under the age of 50, $19,000 can be contributed per year to your retirement fund. So if you see that you have not yet reached this cap, then now may be a good time to make a last-minute contribution. Depending on your income, contributing to a retirement fund could shield you from additional taxes.
Likewise, healthcare contributions can have the same effect as retirement contributions. Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA) will allow you to contribute $2,650 and $3,450 for individual account holders, respectively.
Sell your stocks. Up to $3,000 can be deducted from your taxable income by selling the stocks that you lost money on. Moreover, if you decide to sell some stocks, sell only the winning stocks that you’ve been holding for more than a year. The amount that is taxed on those capital gains is reduced.
Make charitable donations. A popular way to reduce your taxable income is to donate to charities. Donations must be made to tax-exempt organizations only, and you can find a list of these organizations online.
Decide between Standard or Itemized Deductions. You will want to understand the difference between taking the government-defined Standard Deduction or opting for Itemized Deductions. For the 2019 tax year, the Standard Deduction for individuals is $12,200.
Get Help With Your Taxes
Filing taxes is a notoriously difficult process for many people. Digital programs like TurboTax offer a pretty streamlined solution, but for some scenarios, it may be best to seek help. People who are recently divorced, have started a new business, or have switched jobs may want to get professional help with their taxes.
Professional tax agents can become expensive. Luckily there are solutions for people who meet the income requirements. Free File Alliance is an organization that will help you with all the basics of filing a tax return, assuming your adjusted gross income is less than $66,000 annually. And The Volunteer Income Tax Assistance (VITA) is there to help people with an income of $56,000 or lower, and they’ll help people with disabilities or those who are non-native English speakers.