The tax season is almost here. Prepare for tax season with advice that can help you eliminate April woes. You may even be able to file your taxes for free if you meet specific income-level requirements. Last year I volunteered to file taxes for free with the United Way's RealSense program under the IRS's Volunteer Income Tax Assistant program. Well, this year, I'm back at it! I will volunteer with AARP Tax-Aide to help seniors file their tax returns. To find out if you are eligible to file for free, visit the IRS's website and search for a VITA center near you. Before you go, here are a couple of tips to help you prepare to file your taxes.
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Gather Your Documents
If you are not going to file your taxes on your own, it's essential to ensure that you have all the appropriate documents to file your taxes. Having all your needed documents can reduce the number of trips you need to make and expedite receiving your refund if you are due one.
The most common documents you may need to take with you are your W-2s, interest income statements, identification documents like your social security cards and photo ID, unemployment income, mortgage interest, and charitable donations. The least common documents are gambling income or losses, jury duty records, and even canceled debt. Canceled or forgiven debt is considered taxable income, and you must report this on your tax return.
After you've gathered your documents, it's time to file your tax return. Filing your taxes online can help you complete your tax return in the comfort of your own home. Using E-file, you can file your taxes securely and quickly. You can also choose to save all of your tax return or for your future goals. If you qualify for E-File's Basic Software, you can also file your federal tax return for free.
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Research Potential Deductions
When filing your tax return this year, you may be eligible for numerous deductions. So, will you file using the standard deduction or the itemized deduction? It depends on whether or not you have eligible expenses that will lower your tax rate even further using the itemized deduction. Expenses like mortgage interest, real estate taxes, medical expenses, or charitable contributions you've paid can increase your eligibility to itemize. If you don't have these types of expenses, then you may automatically be required to take the standard deduction.
You can qualify for other deduction credits: educational expenses, qualified childcare expenses, educator expenses, and even retirement savings credits. You will receive documents of any expenses paid from eligible institutions to help determine your eligibility.
Consider Saving Your Tax Refund
Once you have filed your taxes and found out that you're eligible for a refund, consider saving a portion or all of your refund. Before clicking the submit button, most tax software asks you to purchase savings bonds with all or some of your refund. This automatic saving method can help you build your future wealth. Savings bonds are a safer alternative than other investments when investing in your future wealth.
You can also consider using a portion of your refund to reduce your debt. Paying down debt is considered saving since you reduce the interest you pay on past purchases. No debt? Then consider building or increasing your emergency fund. We all know that unexpected events occur, so having an emergency fund can reduce the need to use credit cards or loans to cover emergencies.
Evaluate Your Tax Withholding
My final note is that receiving a refund may not always be a good thing. If you constantly receive a large refund when you file your taxes, then your withholdings on your W-4 form may need to be adjusted. Receiving a large refund can mean that your withholdings are incorrect and that you have too much of your income withheld from your pay. Having too much tax withheld is a free loan you give the government every time you get paid. If you need assistance filling out your W-4, visit the IRS's website and use the withholding tool to determine your best options.