Filing your taxes isn’t all bad news, especially for those who overpaid the IRS. Last year, the average tax refund was about $3,000, a nice reward for a few hours spent preparing your taxes.
No matter what you owe or what’s owed to you, filing taxes can be easier this year. Follow this guide for preparing and filing your taxes without headaches.
Gather the paperwork
By mid-February, you should have received all forms you need to file, leaving you with one less excuse to hold off on filing your tax return.
Still, there may be some forms that don’t come in on time, and it’s helpful (although not required) to have all the forms you need before starting your return.
Several types of forms you’ll need will arrive by mail. Common types include:
- Form W-2. You’ll typically receive one from each of your employers which details how much you earned as well as what taxes have been withheld.
- Form 1098. These forms often report any mortgage or student loan interest as well as other educational expenses.
- Form 1099. These forms cover a variety of purposes, including fees paid for work as an independent contractor, interest or dividend income from bank accounts and investments, and other miscellaneous forms of income.
Common places where you’ll receive these forms are from each bank you have an account with, any companies with which you hold an investment account, and anyone that paid you as an employee for more than $600 for contract work.
Use last year’s tax return to make sure you’ve received all the same forms that are still applicable for this year. If you can’t find your return, you can order a transcript directly from the IRS.
Start preparing your return early
There are a few good reasons for filing your taxes ahead of the April 15 deadline. These include:
- Time to track down missing forms. Tax documents that are nowhere to be found are a frustrating part of filing taxes. If they’ve been lost or were never sent, you’ll need time to get a new copy. By starting early, waiting a few days for forms to show up won’t push you past tax day.
- Faster refund. By filing early and choosing to file electronically with direct deposit, you may get your refund faster than if you wait to file and do so by mailing it in.
- Extra time to pay a balance owed. If you end up owing taxes, the full amount is due on April 15. But if you don’t discover this until tax day, coming up with what you owe could make life difficult. Anything that’s not paid on time is subject to penalties and interest charges by the IRS. This includes if you file for an extension and end up owing, too.
You’ll want to make sure you don’t miss any forms you might need, or you could face penalties or miss out on deductions you could’ve taken.
Tally the deductions
While it can be disheartening to see all the money you sent to the government this year, deductions and credits are your chance to get money back. Because of this, you don’t want to miss out on any savings you’re eligible for.
You’ll need either tax forms or receipts to take deductions. But before you go crazy gathering them up, have an idea if you’ll need to itemize your return.
For the 2012 tax year, the standard deduction is $5,950 for individuals and $11,900 for married couples filing a joint return. If you know your deductions will add up to less than this, you’ll likely choose the standard deduction option, for which you don’t need to produce any receipts.
For those who do itemize, some common savings to remember include:
- Charitable donations. These are typically cash gifts to registered charities. The IRS has rules on charitable deductions, so be sure to follow them and track any donations properly.
- Home mortgage and student loan interest. You’ll receive a Form 1098 for each of these if they apply to you. Make sure to adhere to any limits as to amounts you’re allowed to deduct.
- College tuition paid. This can be a big savings, as there are both deductions and the more-valuable tax credits available, depending on your case. See the IRS’s “Tax Benefits For Education” guide for more information.
This isn’t a complete list, so look out for many more common tax deductions that you may be able to claim.
Decide how you’ll file
Filing a tax return isn’t tough when you have everything you need. All you really need to do is take your forms along with some simple information about your life and input that information onto the tax forms. As mentioned earlier, much of the information from last year’s return can be carried over.
If you’ve always filed by paper, consider alternatives to filing your taxes that may save time. Filing using software can make filing your return easier and might not cost as much as you think.
Software like TurboTax, TaxACT, and more often let you prepare your return for free. These services will walk you through your return and let you know what information you need to enter from which forms. All the calculations are automatic. Even if you don’t decide to pay the fee to file, you can compare the results to your paper return.
These tax return services typically charge a fee that depends on which tax forms you need to file, but you may be able to file your federal return for free. Those who made less than $57,000 in 2012 qualify for FreeFile and can use tax software to file their federal return for free. Check the FreeFile website from the IRS for more details.
In addition to online software, tax software you install on your computer offers many of the same features. However, you’ll need to be sure that it’s compatible with the current tax year.
Of course, you can always work with an accountant, too, which may make sense (and even save money) if you have a complicated tax return.
Plan for your refund
Once your refund arrives, you may feel like you hit the lottery. But don’t forget: this isn’t free money. It’s actually your hard-earned cash from your work over the year.
Tax refunds are a great opportunity to tackle some of your big financial goals for the year. You can make a payment towards debt, start funding a retirement account, or save for another purpose.
Getting a small refund isn’t necessarily bad news. While you may have been hoping for some extra cash back, the lack of a big refund means you didn’t overpay on taxes throughout the year. Hitting what you owe dead-on throughout the year can be an advantage, especially if you’re living paycheck to paycheck or may be more inclined to go out and spend a big refund.