With the April 15 deadline looming on the horizon, you should definitely have a plan in place for filing.
Whether you’re filing for yourself, your family or your business, ’tis the season for questions and confusion for many filers.
Here are some tips from the experts to ensure you’re not only ready to file, but also ready for any curveballs the IRS might throw:
Get familiar with the changes in tax law
Though changes in tax law aren’t nearly as significant as they were in 2019, there are still some changes taxpayers should be aware of, even those who use tax advisers.
Among those changes are a number of “extenders” that have been put in place by Congress at the end of last year.
“There were a number of tax provisions put in place that were meant to be temporary,” said Peggy Williams, a financial analyst. “Many had expired or were going to expire soon, so Congress passed a bill to renew some of them in December.”
In addition to victims of natural disasters receiving certain tax breaks under those “extenders,” homeowners can now once again deduct their private mortgage insurance, as well as earn credits for making certain energy-efficient improvements.
To keep pace with inflation, the standard deduction has again increased this year as well, as an estimated 90% of taxpayers have switched to this method versus using the itemized deductions, according to the IRS.
Some taxpayers are still getting familiar with the big changes brought upon last year with the Tax Cuts and Jobs Act of 2017 going into effect, which changed the tax brackets among other things.
“These were some of the biggest changes made to tax law in decades, and it’s understandable if you still haven’t quite grasped it,” said Deborah Ramirez, a KPMG accountant. “Those who still aren’t familiar with these changes should do their research and when in doubt, should talk to their accountant for clarification.”
Start organizing now
There’s nothing worse than searching through piles of documents to piece together everything needed to file your taxes each year.
“Though it may seem like a daunting task, the most surefire way to be successful in preparing your taxes is by taking some time to create a separate location to file all of those documents throughout the year,” Williams said.
Not only does this speed up the filing process, but it’ll ensure you can report the correct numbers and maximize your deductions, Williams added.
Tracking your income and spending throughout the year can also help with this, as it’ll make receipts for deductions and credits easier to spot, according to Ramirez.
“If you’re scrambling to put this all together before filing time, it’s more than likely that you’ll miss some,” Ramirez said.
When the time comes, it’s also a good idea to look back on last year’s returns, as they are a good framework for what to expect this year, according to Williams.
“Looking back on last year is the best way to spot little things you may have forgotten about this year,” Ramirez said. “It’s those little deductions and credits that add up.”
Decide who will prepare your taxes
“Your accountant should offer to do more than just prepare your tax paperwork,” Ramirez said. “Those with more complex tax returns, such as business owners or couples who recently got married, divorced or had a child, should definitely consult with an accountant year-round who they can trust to help them track their finances and get the most out of their money.”
Regardless, those who choose only to do so during tax season shouldn’t wait until the last minute, as they may struggle to find someone able to help at an affordable cost, Ramirez added.
If you aren’t comfortable doing your own taxes or can’t afford to go to an accountant, there are other free options that partner with the IRS, like the Volunteer Income Tax Assistance program.
VITA uses IRS-certified volunteers to offer free basic tax preparation and e-filing to people who earn less than $56,000 a year, are disabled or whose English is limited.
“In the Santa Clarita Valley here, we have found out that based on 2017 data we have (approximately) 20,000 to 30,000 individuals and families that qualify for this free service,” said Johnny Lee, VITA site coordinator. “A lot of the clientele here don’t know about all the various tax credits and deductions they receive — both federal and state — that could increase their refunds by several thousand dollars … It can add up.”
VITA strives to get these taxpayers their Earned Income Tax Credit, which is a benefit specific to people with low to moderate income and can reduce the amount of taxes owed and may give you a refund, Lee added. These credits are available for both state and federal taxes.
“Filing taxes for some people can be like walking through a minefield and hiring a professional may be beyond their budget — that’s where we come in,” VITA volunteer Ron Halcrow said via email. “Last night, I had a single mom with children come in to have her taxes done. She and her family are struggling to survive in Santa Clarita, and even though she worked full-time last year, she still earned less than the amount necessary to bring her and her family up to the poverty line.”
That woman had no taxes to pay and didn’t meet the income required to file, yet she filed in order to receive some of the benefits only available to low-income workers who file their taxes, Halcrow added.
“In this mom’s case, we were able to find enough refundable tax credits, meaning cash awards, for her, that she will now be receiving checks from the IRS and the California Franchise Tax Board in a combined amount,” Halcrow said, “almost equal to her total earned income for the year.”