It’s tax season, and it’s estimated that 70% of all filers will receive a tax refund! Last year, the average refund was $2,860 and the IRS believes the numbers for this year will be similar. The deadline to file 2016 income tax returns and pay any taxes you owe is Tuesday, April 18. Filing your tax return can seem like a monumental task, so here are some tips to file your return efficiently with less stress:
Organization is the key to reducing your stress and filing your return properly. The first step is to create a tax folder with the files you will need for your current year’s return. Here is a list of common forms and documents needed to file your return:
- You should have received a W-2 from your employer at the end of January showing your taxable earnings and what taxes were withheld. If you're an independent contractor, the company(s) you worked for should send you Form 1099-MISC showing your gross earnings.
- Interest earnings are typically documented on Form 1099-INT. If you've invested in stocks or mutual funds, you should get Form 1099-DIV for each account. Reports on the proceeds from broker transactions will be sent to you on Form 1099-B.
- If you own a home, your mortgage lender will send you Form 1098 with the total interest and real estate taxes paid in 2016. Mortgage interest isn't limited to your primary residence. If you have a vacation home, the interest on that loan may also be tax deductible. Interest paid on a home equity loan may also be applicable. Consult your tax advisor.
- If you're self-employed, make a file for all receipts and documentation for business-related expenses; for example mileage records kept when using your car for business, purchase of office equipment and supplies, the portion of utility bills related to maintaining a home office, etc.
- Add a file to your tax folder to manage the receipts for medical bills, proof of charitable donations, and a copy of last year’s tax return.
Prepare and file your return
Free File is the free tax preparation service provided by the IRS and is available for almost everyone. Preparing returns using the Free File system is available only at IRS.gov and offers two filing options:
- Option 1: Free-File software, offered by the IRS’ commercial partners is available for individuals and families with incomes of $64,000 or less; or
- Option 2: the electronic version of IRS paper forms are available to those filing their own returns as online Free File Fillable forms to taxpayers with an income above $64,000.
If your income is $54,000 or less, if you have a disability, or struggle with English, you can get free assistance to help you prepare your own tax return at a Volunteer Income Tax Assistance (VITA) location near you. And if you are age 60 or older, free tax help is available through Tax Counseling for the Elderly. Find a location near you.
Finding a good tax preparer
For some people, preparing their own taxes is too complicated or time consuming. If this is the case, you will need to hire a trusted tax preparer. Ask friends or family members if they can recommend a good preparer. There’s a list of tips to help you select a preparer available on IRS.gov. If you are in need of financial assistance with tax preparation, an online search will identify free tax preparation services offered in your area at libraries, community centers, or churches.
Increase your deductions and reduce your taxes
You may be able to contribute to a Roth or traditional IRA for the tax year 2016 through April 18, 2017 to get the additional tax deduction while bolstering your retirement savings. If you’re enrolled in eligible high deductible health insurance plans provided by your employer, you may still contribute to a qualified Health Savings Account through April 18, which may reduce your adjusted gross income.
Understand the Affordable Care Act Tax Provisions
The Affordable Care Act includes the individual shared responsibility provision and the premium tax credit – also known as PTC – that may affect your tax return. The individual shared responsibility provision requires you, your spouse, and your dependents to have qualifying health insurance for the entire year, report a health coverage exemption, or make a payment when you file. In addition, if you purchased coverage through the Health Insurance Marketplace, you may be eligible for the premium tax credit.
Filing your return as soon as possible is a good way to reduce tax time anxiety. And, for those expecting a tax refund, the earlier you file, the earlier you’ll get your money, which is the best incentive to get started!