Here are 5 tax tips that can save you money:
1. Get Help Preparing Your Tax Return
One of the best things you can do is get help preparing your tax return. It may seem counter-intuitive that paying someone to prepare your tax return can save you money, but in many cases it can. You might not be up to date on the latest tax law, and accountants are experts at finding deductions that you might miss.
If you do decide to work with a tax preparer, make sure you get all the documents you need ahead of time and in an orderly fashion. Preparers often work on an hourly rate so if they need to do research, such as pulling up your property tax records for the deduction, that’ll be charged to you. Collect everything yourself and let them do the heavy lifting of filling out the return.
To make things easy, Betterment’s system is now integrated with H&R Block. Also, you can deduct tax preparation fees as a miscellaneous itemized deduction on Schedule A and that can reduce your taxes (it is subject to the 2% limit though).
2. Do It Yourself
If you have a simple return, it doesn’t make sense to go to a tax preparer. There are many free tax filing programs available, including tax preparation if you you earn under a certain threshold.
For example, the Volunteer Income Tax Assistance group offers free tax preparation to low income, elderly, disabled and limited English speaking individuals. The income level changes each year but many people qualify.
If you don’t qualify for free tax preparation, you might qualify for free tax preparation software like Turbotax. The free version includes the main Form 1040 (including 1040A, 1040EZ) as well as several major schedules. What it doesn’t include are the schedules for small businesses and if you sold any investments.
Betterment’s system is integrated with Turbotax software, which makes managing your own return easier.
3. Prepay Interest and Other Expenses
If you have planned expenses that are tax-deductible, you can prepay those expenses and save on your taxes for the following year. Obviously it’s too late for 2013, but make a note to do this in the latter months of this year. You can prepay your mortgage interest for January before the end of December. Consider prepaying interest on your investment property, or paying other expenses you know will come up in the early part of next year. Get them paid by December 31, and you can probably include them as deductions in your 2013 tax return.
4. Make Additional IRA and HSA Contributions after You Figure Your Taxes
One of the realities of contributing to a 401(k) is that you have to make your contributions by December 31 in order to count them. If you have your taxes prepared and wish that you had contributed a little more, it’s too late for the 401(k). The good news is that you can contribute to a Traditional IRA or a Health Savings Account until April 15 for the previous year.
So, if you have your 2012 taxes prepared in February of 2013, and a contribution of two or three thousand more dollars to a tax-advantaged account might make a difference in what you owe (getting you down a tax bracket, for example), you can still make the contribution.
5. Make Sure to Sign Your Tax Form
One of the biggest mistakes that people make when preparing their taxes is failing to sign. Indeed, the IRS estimates that more than one million people forget to sign their tax returns. You don’t want to be one of these, since it can lead to a delay in receiving your refund, or it can lead to problems processing your taxes.
Along with signing your tax return, make sure you check for other mistakes. Even if someone else prepares your taxes, you should check through to make sure that everything adds up. A mistake can mean that you don’t pay what you should, and can result in penalties and interest charges. You don’t want that!
Tax time’s no fun for anyone, but with careful planning, you can save time and money. And that’s a big win.