Published April 06, 2012
Countdown to April 18
Remember when your mother scolded you for running up the stairs two steps at a time? "Slow down," she would say. "You're going to trip and hurt yourself." Taking it step by step will get you there almost as quickly with much less chance of a painful fall.
As usual, mom was right. And her wise words are just as applicable to your tax-filing tasks.
When the tax-filing deadline nears, folks tend to rush through returns. That's a bad idea, since you're more likely to make mistakes or overlook tax breaks, both of which could cost you some serious tax dollars.
But by approaching your tax filing one step at a time and spending around an hour a day on taxes for the next seven days, you can complete your annual taxes in just a week. Here's the Bankrate plan.
Examine exemptions, etc.
Decide on your deductions.
Find your forms.
Count your credits.
Fill out your forms.
Sign, seal and deliver.
Even better, by spreading out the duties you'll save your sanity, good humor and maybe a little tax money, too. So click to the next slide to get started with the first day's tasks.
Day 1: Gather data
Let's start with the name: the income tax. That means you need to gather all your earnings information.
Start with your W-2 wage statements. You should have one for each salaried job you had last year.
Don't forget any 1099 forms. These statements, each with a different suffix, will come from various sources.
You'll get some from employers if you did independent contract work. Others will come from banks and investment companies if you owned financial instruments that paid interest or dividends or you sold a stock or other property.
Are you a gambler? It's not a good idea to take chances with the Internal Revenue Service, so be sure to report any winnings because that money is taxable, too.
Retirees also take note. You might owe the IRS on part of your Social Security.
Even tough economic times are no insulation from the IRS. If you collected unemployment, those payments are taxable. You should have received a Form 1099-G showing the amount of unemployment upon which you'll owe taxes.
Find all these income statements, along with other tax-related documents you received earlier this year. Your tax tasks for the day are done.
Day 2: Examine exemptions
Today we start slashing your tax bill by claiming exemptions, dependents and a wide variety of adjustments to income. And this is all done on the first page of your Form 1040 or Form 1040A tax return.
First, your exemptions: On your 2011 return, you get to take $3,700 off the top for each person you claim as an exemption. That's generally a pretty easy determination: you, your spouse and any dependents, which generally means your kids. But did you care for a parent, even one who didn't live in your home? You may be able to claim an exemption for that person, too.
The key thing to remember when it comes to folks who qualify as your dependents is that you need their Social Security numbers. Without those nine digits, the IRS will disallow the claim.
Next, there are some expenses eligible taxpayers can claim directly on the 1040 or, to a lesser degree, the 1040A. These are known as adjustments to income or above-the-line deductions and include, to name just a few, certain IRA contributions, student loan interest, alimony payments or moving costs.
Take a few minutes to check out the complete income adjustments list, and note which ones apply to you. That's it. You're done for today.
Day 3: Decide on deductions
The real fun begins today with deductions. You can choose between the standard or itemized deduction amount.
Most taxpayers use the standard deduction rather than bothering with tracking every expense to itemize. If the standard amount works for you, great!
If, however, you have substantial tax-deductible costs, such as additional home-related write-offs, medical expenses and charitable donations, you'll want to maximize those expenses by itemizing.
The important thing when it comes to itemized deductions is to have the documentation to back up your full array of Schedule A itemized costs.
Go back to the material you collected on day one. Your W-2s will show how much state and local income taxes you paid. Find that statement from the mortgage company showing your loan interest and property tax payments. And dig out the receipts you got for all your deductible donations.
Make sure you don't miss any, because all these amounts will help whittle your income to the lowest possible taxable amount.
Day 4: Find your form
Today we find the tax form that's right for you.
The IRS offers three: 1040EZ, 1040A and 1040. It may be tempting to use the simplest form, the 1040EZ, if you can, but look at the other two anyway. They offer many more tax break opportunities.
Once you've made your choice, check it out to see exactly where you'll put the information you gathered. (But don't enter anything yet. We have to have something to look forward to!) This also will give you an idea of any additional forms you may need. Where an attachment is required, it will be noted on the individual tax return you file.
For example, if you opted for the long 1040 return, you'll likely need Schedule A to itemize your deductions. You also might need Schedule B if you have a lot of interest or dividend income to report. Self-employed taxpayers will see mention of Schedule C or Schedule C-EZ, along with the accompanying Schedule SE to pay self-employment taxes.
Even if you use tax software to fill out your return, it's a good idea to know what will be expected. By examining the forms beforehand, you'll have a heads-up when it comes time to start filling them out.
Day 5: Count your credits
If you thought deductions were good, you're in for a real treat today.
Pull out the tax return you chose yesterday. If it's a Form 1040 or Form 1040A, look on the back and you'll find an assortment of credits sprinkled in all those lines. These tax credits, along with your withholding, are how you pay your eventual IRS bill.
That means tax credits cut your tax bill dollar for dollar. A few even can get you a refund.
If you didn't make much money, you may be eligible for the earned income tax credit, or EITC. This is the one credit that's also available on the 1040EZ.
On the other two forms, many more credits show up. Among the most popular are the child-related tax breaks, from the $1,000 per child tax credit to the one you can claim if you paid for day care to watch them while you worked. There's even a credit to cover some adoption expenses.
Credits also are available for some education costs, yours as well as your children's. Even older filers have their own special tax credit.
So check out the credit possibilities, and get ready to claim them. You'll get your chance tomorrow.
Day 6: Fill out your forms
Are you ready to have some tax fun? Today we get to work on your actual return.
If you use a software program, it will take you through the process, asking you for the information that you've collected over the last few days.
Nearly half of filers, however, still send in hand-filled paper returns. In this case, you can either work your way through income and deduction data stacks, entering the information at the appropriate tax return lines, or you can start at the beginning of your chosen 1040 and work your way down the return.
If you're filling it in by hand, here's a tip: Have the instruction book for your tax return handy. While Form 1040 and any other schedules you might need seem daunting, they don't contain all the information you need to take full advantage of possible tax breaks. That's found in the instructions, where you can determine just what tax form lines do -- or don't -- apply to your personal filing situation.
Today might take a bit more than an hour; but as your mom cautioned, you don't want to be in too big of a hurry. Enter your information carefully to ensure you don't make any common tax-filing mistakes.
When you finish, set it aside. We have one more day to wrap things up.
Day 7: Sign, seal and deliver
We're almost done! Today, with fresh eyes, double-check your tax form entries.
Once you're sure you've correctly accounted for all your income, claimed every possible deduction and credit, and entered all that information properly on your return, it's time to put the finishing touches on your annual tax duties.
Sign it, electronically or by hand, depending on your delivery method. Either way, a John Hancock is a requirement.
If you did your taxes on computer, be sure to save a copy to your hard drive. A printed copy isn't a bad idea, either. If you filled out your Form 1040 by hand, make yourself a copy of that final form and all attachments.
Then send it on its way, either via the post office (make sure you've put enough stamps on the envelope) or by hitting the "enter" button on your computer keyboard.
That didn't take long. So what are you plans for the rest of today's planned tax hour?
Bankrate suggests you take a well-deserved break! And mark your calendar for this time next year, when you can again complete your annual tax chores in just seven relatively stress-free days.