7 steps to consider as you prepare your tax return
Tax Day is less than two months away. Are you ready?
Hare some of the key points to keep in mind as you begin to focus on preparing your tax return, as well as a few new wrinkles for the 2013 tax year:
1. GET ORGANIZED
The first step toward preparing an accurate return is to make sure you have all the necessary documents. At the top of the list are the forms detailing your income for 2013. This could be various 1099 forms, typically received by workers hired on a contract basis, or a Form W-2, commonly issued by employers of salaried or wage workers.
Taxpayers who did a lot of independent contractor work will need to make sure they have a complete set of 1099s.
2. UNDERSTAND WHAT INCOME IS TAXABLE
People who receive income from other sources aside from an employer should make sure they know whether they need to include those earnings as taxable income on their return. Some examples of income that are usually not taxable are child support payments, gifts and inheritances, and welfare benefits.
Sometimes there are caveats. For instance, scholarship funds used to pay for tuition and books are not taxable. But if you use some of that scholarship to pay for room and board, that amount would be taxable.
The Internal Revenue Service has more details in Publication 525 on IRS.gov.
3. CONSIDER NEW TAXES FOR 2013
Lawmakers mostly kept tax laws unchanged in 2013, but there are a few tweaks that could affect some taxpayers, particularly those who earn more than $100,000 a year. Several changes came about as part of the federal health care overhaul.
One key change applies to medical expense deductions.
Previously, if your medical expenses eclipsed 7.5 percent of your adjusted gross income, you could deduct any medical costs above that threshold. For this tax season, the threshold has been raised to 10 percent.
Another new tax applies to people whose income exceeds $200,000, if they're single, or $250,000, if they're married and filing jointly. The government will apply a 0.9 percent tax to income above those thresholds.
"This could catch particularly married tax payers by surprise," said Lindsey Buchholz, a principal analyst at H&R Block.
That's because employers won't start withholding this tax until the person's income exceeds $200,000. Married couples who separately have income under $200,000, but jointly surpass the $250,000 threshold, would not have the additional tax withheld.
4. EMBRACE E-FILING
The IRS estimates that more than 80 percent of tax returns are filed electronically. And if you have a refund coming, filing your return electronically and requesting that the funds be paid directly into your bank account is the fastest way to get the IRS to pay up.
Electronic filing usually means using commercial tax preparation software, such as TurboTax. In addition to selling software, H&R Block also offers a way - at www.hrblock.com/online-tax-filing/ - to file a tax return online for free.
Another option is to go directly through the IRS, which offers a free online tax filing program dubbed Free File. To use Free File, your adjusted gross income in 2013 must have been $58,000 or less. If you earned more than that, the IRS offers free tax forms online that can be used to file electronically. But be aware that there are some exceptions.
5. CONSIDER PAYMENT OPTIONS
You've prepared your tax return and realize you owe money.
The IRS accepts payments online, by check or over the phone using a credit or debit card. More details on making payments are available on the IRS website.
What happens if you can't afford to pay the full amount by April 15? One possible option is to pay in installments. The IRS offers several payment plans, including short-term payment extensions of up to 120 days and monthly installment plans as long as six years. To qualify, you must file your tax return and owe $50,000 or less in taxes, penalties and interest, combined.
If you owe between $25,000 and $50,000, you have to agree to let the IRS deduct payments automatically from your bank account.
Signing up for an installment agreement can cost from $43 to $120 in fees.
To find out whether you qualify, go to the IRS website's online payment agreement portal: www.irs.gov/Individuals/Online-Payment-Agreement-Application .
6. KEEP TABS ON YOUR REFUND
If you are due a federal income tax refund, there are more options than sitting by your mailbox. The IRS typically will issue refunds in less than 21 days. But if you can't wait it out, you can check the status of your refund on IRS.gov, under the Where's My Refund tool. The IRS also lets you check on your smartphone via an app dubbed IRS2Go.
7. GET MORE TIME TO FILE
Not able to make the filing deadline? The IRS will grant you a six-month extension to file your tax forms, as long as you request by 11:59 p.m. EDT on April 15.
Filing for an extension doesn't spare you from having to pay your tax bill by the deadline, however. And failing to do so means you'll incur interest charges and fees on top of what you owe.
The IRS accepts extension requests three ways: by mail, via tax-preparation software, or online via the IRS website. To request the extension, you must fill out IRS Form 4868, which is available on the IRS website, through most tax preparation software, as well as in public libraries and post offices.