With the tax filing deadline looming, now's the time to think about cranking out that return. Here are a few things to keep in mind as you go about the process.
1. Always report all of your income
For many tax filers, there's no greater fear than being chosen for an audit, and a good way to get yourself on that list is to neglect to report certain income. As you sit down to work on your taxes, comb through your files for 1099 forms, which report income received from freelance work, bank account interest, dividends, and the like. If you're missing a 1099 that you believe you should've received, contact the would-be issuer now, while there's still time to snag a copy ahead of the tax-filing deadline.
IMAGE SOURCE: GETTY IMAGES.
Though you're not required to attach copies of 1099s to your tax return, it's important that the numbers you report match what those forms say. If they don't, and the error works out in your favor (meaning, you report less income than what your forms list), the IRS could flag your return and come after you for underpaying your taxes. Remember, for every 1099 form that's issued, the IRS gets a copy, too, so be sure to report all of your income -- even smaller amounts that may seem insignificant.
2. Accuracy is key
Being accurate on your taxes can help you avoid major trouble with the IRS, so make sure to go through your records and use precise numbers when claiming deductions. If you guess at a number and the IRS audits your return, you could wind up getting penalized for misrepresenting your expenses --even if it is an honest mistake.
Along these lines, when claiming deductions, you may want to steer clear of round numbers -- unless, of course, it happens to be the case that a certain deduction works out that way, and you have records to prove it. For example, you're allowed to deduct out-of-pocket medical expenses that exceed 10% of your adjusted gross income. If you don't have good records but claim to have spent $10,000 on healthcare, that's almost too perfect a number to be true -- and it might get your return audited.
3. Filing electronically has its benefits
While most tax filers submit their returns electronically these days, there are still those who prefer the old-school paper approach. If you're one of them, you should know that filing electronically can save you a fair amount of stress and aggravation. First of all, the error rate for electronically filed returns is quite low -- less than 1%, in fact. The error rate for paper returns, on the other hand, is as high as 21%. Making a mistake on your taxes could cause your return to get audited or rejected, neither of which is ideal.
In addition, most tax software is designed to help you identify money-saving credits and deductions. And speaking of money, if you're owed some from the IRS, you'll get it much faster if you file an electronic return. While it typically takes the IRS six to eight weeks to issue refunds for paper returns, most electronic filers who are due a refund get their money in three weeks or less. Tax filers who earn under $64,000 a year can do their taxes electronically at no cost through the IRS's Free File software, so if you're eligible for this option, it definitely pays to check it out.
4. When all else fails, request an extension
If you're really unable to get your tax documents in order by the April 18 deadline, you're better off requesting an extension than filing an inaccurate return or risking a rush-induced error. That said, be aware that all an extension can do is buy you more time to submit your actual return. If you owe the IRS money, it won't get you out of paying what you owe by April 18.
While paying your taxes late will result in a penalty to the tune of 0.5% of your liability per month up to a maximum of 25%, if you owe taxes but don't submit a return or request an extension by April 18, your penalty could be even worse. Specifically, you'll risk a late filing penalty equal to 5% of whatever taxes you owe per month, up to a maximum of 25%. Furthermore, if you owe money and file your taxes more than 60 days late, you'll face a minimum penalty of $135 or 100% of your unpaid balance -- whichever is less. Even if you can't pay your bill on time, make sure to get your return or extension request in by the deadline.
Doing your taxes doesn't have to be a stressful endeavor. Follow these tips, and you'll be well on your way to a smooth, hassle-free filing.
The $16,122 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,122 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.