Because I love a big tax refund, I filed my return long ago, received the money, and used it to pay down debt. But like many people, my cousin Nick hasn't even started. He doesn't get a refund, so he waits until April to do his taxes. He's been skulking around the office for the past week muttering, "I need to start my taxes," and, "You should write an entry reminding people to start their taxes."
Many of you are probably last-minute filers, too. If you haven't submitted your tax return yet, here are some tips to make the process less painful:
- Get help from the source. The IRS web site is surprisingly useful. There's a library of forms and publications, an extensive list of frequently asked questions, and information on how to file for an extension.
- Claim your telephone excise tax refund. If you've had phone service since 2003, you can claim a standard refund of either $30 or $60 (depending on the exemptions you claim). If you saved your phone records, you may be able to claim even more! The IRS says that 30% of those filing returns are forgetting to claim this.
- Take advantage of the Free File program. The IRS reports that 70% of all taxpayers qualify for free electronic tax filing. If your 2006 adjusted gross income was $52,000 or less, check the IRS web site for more information.
- Use tax preparation software. It's quicker and less prone to errors. It can even save you money. Matt recently told me about an experiment he conducted: he prepared his own taxes with software, took them to a small-town CPA, and also had them done by a big-name firm. Though the big-name firm had the best results, the tax software was a close second.
- Check your work. The IRS doesn't like a sloppy return. (Accidental errors are the top reason for tax audits.) Make sure your numbers are correct. Include your social security number. Attach all retired paperwork. Sign your return! Note that this is another reason to file an electronic return — computers help to catch bonehead errors.
- Beware of audit flags. Take deductions you can substantiate, but don't stretch the truth. Don't be tempted to cut corners. Your best defense against an audit is to be honest.
- If you can't pay, don't panic. The worst thing you can do is nothing at all. The IRS offers several payment options. In January, CPA Brian Brown told GRS readers what to do if you can't pay your taxes.
Be sure to store a copy of your return and all supporting documents in a safe place. After you've finished, visit SaveorSpend.com, where sharing your tax story qualifies you for a chance to win an Amazon gift certificate. Continue reading...
Kris and I received $2789 in tax refunds this year.
Already I can hear the sound of hundreds of heads thumping against hundreds of desks. Many of you are wailing, "Why?! Why?! Why?!" Of all the financial choices a person can make, getting a large refund is universally considered one of the dumbest. Magazines advise against it. Books advise against it. Blogs advise against it. Yet every year, millions of Americans like me use their tax refund as a sort of forced savings account.
Why do we do it?
In 1913, Wyoming ratified the 16th Amendment, providing the three-quarter majority of states necessary to amend the Constitution. The 16th Amendment gave Congress the authority to enact an income tax. That same year, the first Form 1040 appeared after Congress levied a 1 percent tax on net personal incomes above $3,000 with a 6 percent surtax on incomes of more than $500,000.
— A Brief History of the IRS
It's February. Tax season is in full swing. Employers, banks, and investment firms have mailed out W-2s and 1099s and other miscellaneous tax documents. These are beginning to pile up on kitchen tables across the country. Over the next few weeks people will sit down to puzzle out their tax situation. Continue reading...
Here's a guest post from Brian Brown, C.P.A. He offers advice on what to do if you find you can't pay your taxes.
With enthusiasm and boldness, you head into 2007 with hopes of greater discipline in spending, saving and investing. However, much to your dismay, the first part of 2007 brings the inevitable day of reconciliation with Uncle Sam in the form of filing your annual 1040 tax return. Perhaps your situation worsens further when you realize that you can't pay the amount due Uncle Sam per your 1040 tax return. Don't worry — you are not alone. This is a common occurrence. Accordingly, the Internal Revenue Service provides certain tools for arranging payment by taxpayers.
Let's first examine the steps prior to engaging the IRS tools. Continue reading...
Here's some end-of-the-year advice from new GRS-reader W.C. Varones, a finance professional from San Francisco. Varones writes that if you have investments for your children, now is the time to maximize them.
If you have stocks or mutual funds in investment accounts for your children, don't let December pass without taking the opportunity to step up the cost basis of the investments.
Every year, a child is allowed $800 of investment income without having to file or pay taxes. This includes interest, dividends, and capital gains. So if you've got 100 shares of Disney worth $3200 in Timmy's account that you bought a few years ago for $2400, Timmy can take the gains without paying taxes (assuming no other investment income). He just needs to sell the stock and then immediately buy it back.
An AskMetafilter user wonders how long to keep receipts:
I have been keeping all of my receipts for some time now. Every day, I enter them into my money tracking system (presently just a text file where I capture date, payee and amount). Then I file the receipts away in folders by month. My question: does it do me any good to save the receipts, or is having the data good enough? [...] I've never had to bring out individual receipts for tax purposes before, but my understanding is that if I got audited, having all my receipts would be very helpful. Is that true?
Bankrate has an excellent table summarizing how long to keep financial records. To summarize: