I wonder how many of these articles started off with the phrase “Well, it’s tax time again.” Not to be cynical, but here’s my Ten Tax Tips for 2006.
1. File early
One of the biggest headaches associated with tax time is the deadline. People wait until the last second to file, and ultimately, it adds to the stress.
2. If you have to file late, ask for an extension
There’s no shame in asking for a tax extension. They even have special rules for foreign living and special circumstances. Try looking up “Form 4868”.
3. Itemize or not to itemize?
If your standard deduction is LESS than your itemized deductions (because of medical expenses, charity, mortgage, or other deductions), it pays to itemize. Don’t miss out on money that you may be able to recover, especially if it only takes a bit of work.
4. Check your math for errors
Make sure your math is correct.
5. Check your math for errors again
Did you read number 4? Double check your math. This is a HUGE reason for why people are surprised when their refund checks come late, or they receive a bill in the mail.
6. The earned income tax credit
The EITC is designed to help low-income people. Every year, more than $6.5 billion dollars in federal aid designed to help low-income people is not collected. I wonder what $6.5 billion dollars sounds like when it disappears.
The worksheet for seeing if you can file for the EITC: http://apps.irs.gov/app/eitc2006/Forward_Eligibility.do
7. Don’t avoid filing taxes if you can’t afford to pay taxes
Surprisingly, some people don’t file taxes because they can’t afford to pay. The IRS can work out a payment schedule that’s right for you. Not filing taxes means that you receive yet another penalty. If you’re in tax trouble already, not filing is just going to make it worse
8. Do not get a quick refund loan
Tax refund loans have a strange quality. What happens if the IRS rejects your refund claim? Let’s say you take out a refund loan for $1000 dollars plus service fees. The IRS then decides to decline your deductions, so your actual return is only $800. That means you STILL HAVE TO PAY that $200. You just lost money without a good reason! Plus, you just paid service fees.
9. Don’t pay off your taxes with a credit card
The interest rate stinks! If you can’t afford to pay, see if you can work out a payment plan.
10. Cross your I’s dot your T’s
Make sure that all your personal information is entered correctly. If you have to include your social security number on some deduction paperwork, make sure that paperwork is accurately recorded.
Also, make sure that you provide accurate mailing information for the IRS to send you notices, or hopefully, your tax return.