Taxes For Beginners, Continued
Hey there, the tax season is upon us and I wanted to get this blog out as soon as possible with the hopes that you will read this before you do your taxes. Tax season started on February 12th and I want to help save you as much time and maybe even money.
If you haven’t read my last blog, Taxes for Beginners (Part 1), you need to because you will walk away feeling so much more confident when it comes to your taxes. There are terms that I use in this blog that will only make sense if you have already read that blog. I even give you ways to legally reduce the amount you have to pay in taxes every April or increase the amount of your take home pay every time you get paid! Make sure you check it out.
Just remember I am not a professional, the information I am giving you is for educational and informational purposes only and to use as a starting point. Do your own research and talk to your tax person to discuss your personal situation.
Do Your Taxes Early
I have a few tips to help you during this tax season: the first pro tip is to do your taxes early. The longer you wait, the harder it will be to get an appointment and the more rushed your tax person will be when they are doing your taxes, this could mean they overlook something that could possibly cost you money.
IRS data shows that taxpayers who file by early March get on average $400 more than those who file later. During the 2019 tax season, nearly 34 million taxpayers waited until the first and second week of April to file their tax returns; that’s more taxes done in those two weeks than in the entire month of March.
You see how overworked the tax people will be the longer you wait and that means a better chance for errors. I heard that a good time to do your taxes is the first two weeks in March. The early birds have already gotten theirs done and the procrastinators aren’t going to start going in until April.
Another good reason to file early this year is that there is talk of another round of stimulus checks. It looks like if approved, the soonest the stimulus checks would start to go out is the week of March 8th. And guess who is responsible for getting those checks out? Yep the IRS, the same ones that are responsible for processing and getting out your refund tax checks.
So you want to get your taxes done early so you don’t get stuck waiting around as the IRS tries to process millions of taxes in April on top of the millions of stimulus checks. You might be waiting a while! Filing your taxes early, doing them electronically and with direct deposit is the fastest way to get your refund. The IRS has already warned to expect heavy call volume and paper-processing. So if you can, file electronically.
Another good reason to get them done early is that in case you owe taxes, it gives you more time to pay the money back. Getting them done in the beginning of March gives you a month and a half to pay your bill compared to doing them the first week of April giving you only two weeks to pay your bill.
Preventing Tax Return Identity Theft
The longer you wait to file your taxes, the more time identity thieves have to do it for you; and no they aren’t trying to pay your tax bill. You want to close the timeframe that someone has to use your social security number to get your tax return. Although the IRS says that they have been able to combat this problem more and more each year, it is still listed as one of the top 12 tax scams, also known as the “Dirty Dozen”.
Some other ways to combat being the victim of tax return identity theft is to protect your social security number, don’t give it out unless there’s a good reason and you’re sure who you’re giving it to. The IRS will not contact you by phone or email to verify any personal identifiable information (PII). Research a tax preparer thoroughly before you hand over personal information. Keep reading for help finding a qualified tax preparer.
The other thing you should do is to check your credit report at least once a year to make sure no one has opened a new account in your name. And actually what a coincidence, my next two blogs will be on your credit and credit report. Look at how that worked out!
Who Does Your Taxes?
I still don’t feel confident enough to do my own taxes no matter how easy TurboTax says it is. If you do your own taxes, I applaud you. In 2019, the average amount that people paid to get their taxes done by a professional was almost $200 for the standard deduction and close to $300 for itemized deductions. If you are sitting there wondering what an itemized and standard deduction is, I got you covered in my last blog!
Maybe one day I will get to the point where I do our taxes but for now, I am going to keep going to a professional. If your finances are pretty simple, it might be a good idea to consider doing them on your own, it costs about $80.
But if you want to save yourself $80, the IRS is offering a FREE way to do your taxes online, it’s called IRS Free File. It’s available for those with an adjusted gross income, AGI of $72,000 or less. Don’t know what AGI is? I talk about it in my last blog! IRS free file offers online tax preparation, direct deposit of refunds and electronic filing, all at no cost!
I prefer to pay a few hundred dollars to have a professional do something that involves thousands of dollars. Another reason I am going to keep going to a professional is that I like building a relationship with the same person, so that I can reach out to them throughout the year to give me advice based on my specific situation, especially since our financial situation is starting to get more complex with the businesses that we have. And, just in case anything is to happen, like an audit, they can help us through the process and even mediate with the IRS on our behalf.
My point is that if you are going to have someone else do your taxes, make sure that it is someone who really knows what they are doing, even if it will cost you a little more. You don’t want to be handing over so much personal information (income information, social security numbers, bank account information) to just anyone.
I had been going to the same guy for a few years and last year when I started to ask some basic tax information that I thought he should know and he couldn’t answer it. Needless to say, I will not be going back to him. On Dave Ramsey’s website, the financial guru for the common people (I gave him that title myself), you can find an endorsed local tax person. I used this service myself to find a new tax person.
You can also go to the IRS website and search for a qualified preparer in your area. The IRS also recommends checking with the Better Business Bureau for any disciplinary actions and the license status of the preparer and asking about their service fee. If they base their fee on a percentage of your refund, you shouldn’t go to them. Also per the IRS, never use a tax person that asks you to sign a blank tax form.
Document Checklist
I think it’s been two years in a row now that I have went to do my taxes and have forgotten some type of paperwork. So, I decided I needed a checklist to keep me organized. Below is my recommended list of the basic documents you will need when you go do your taxes. Take a screenshot or a picture and use it to collect all the paperwork you will need before your appointment. You can also download a more detailed checklist on my tools page. It includes things for business owners, rental properties, those that are self-employed and retirement income. There are some things on this list you might not need but like I tell my kids, it’s better to have it and not need it then need it and not have it.
- Social Security numbers or tax ID numbers for you and all your dependents
- Date of birth for you and your dependents
- Photo ID for you and your spouse
- W2 from every one of your employers
- Documents for all charitable donations
- Voided check or routing and account number for where you want your refund to go to
- Childcare records to include the provider’s tax ID number
- Form 8332 if you are a noncustodial parent claiming a child
- 1098, Mortgage interest statements
- 1099G, Unemployment (if applicable)
- 1099 and 1098Ts, If you or anyone of your dependents was in college
- 1099-INT, 1099-OID, 1099-DIV, Interest, dividend income
Wrap Up
Do you feel more educated now when it comes to taxes? I really hope you do. It took me a while to gather all the information for this blog and the next. But it was necessary because taxes is one of those things that most people feel clueless about. Like anything else, taking time out to learn a little bit more about something you don’t know will increase your confidence in that area. The point of my YouTube channel and this website, is to give you basic financial information to increase your financial education with the hopes that you become more interested and start learning even more! Let me know how you fared out this tax season in the comment section, I would love to hear from you.
To Your Finances,
