7 Practical Tips Anyone Can Follow to Make Tax Season Less of a Headache, According to Accountants
Your W-2 or 1099 arrives in the mail and you immediately throw it on the desk near the pile of receipts spilling out of your tax folder. It’s time to organize for tax season, but you’re not quite certain of the best approach. Who can blame you? The tax code is over 10 million words and is not easy to understand. This time of year adds increased stress for many people, especially if you’re uncertain about whether you’re eligible for a refund or qualify for a deduction.
What if I were to tell you that there are ways to make April 15 feel a little easier? Check out these seven practical tips from accountants that can make tax season less of a headache:
Give yourself plenty of time to complete your filing
Brandon Berquist, CPA and tax specialist at Personal Capital, an Empower Company, says, “It is important to take some time to organize your information as well as understand all events that occurred in 2020 that will be reflected in your tax return.”
He recommends taking small steps to finish your return, adding that contrary to popular belief “You don’t have to do the tax return in one sitting.” He suggests you “start early and complete the return in stages which can be less stressful and gives you the opportunity to review the return multiple times with a fresh brain.”
Try to remain organized year-round
Sifting through paperwork and trying to find key receipts two weeks before taxes are due will likely increase your stress levels during April. Instead, George Birrell, CPA and Founder of TaxHub, tells Apartment Therapy, “You need to be organized all year round or at least organize yourself and finances at different intervals throughout the year.”
He recommends keeping receipts, invoices, and organizing expenses digitally throughout the year to avoid scrambling for paperwork at the last minute.
File your taxes on time, even if you can’t afford to pay them immediately
Use your calendar app and alerts and reminders to your advantage. Filing on time is important even if you cannot necessarily pay your taxes at the time of filing.
“If you fail to file by April 15, you will face a penalty at about 5 percent of the unpaid taxes for each month or part of a month that a return is late,” finance expert Andrea Woroch says. “However, even if you can’t pay any outstanding taxes, it’s important that you file your tax return on time anyway. This way you avoid any potential penalties or interest. Keep in mind, the failure-to-pay penalty is less than the failure to file.”
Check if you’re eligible for deductions
Deductions aren’t just buzz words — they matter when you’re filing taxes. Empowering yourself by knowing which deductions apply to you is important. Paul Sundin, a CPA and tax strategist at Emparion, says deductions that might apply include medical expenses like the costs of diagnosis, cure, mitigation, treatment, and disease prevention. Sundin also points out a mortgage interest payment qualifies as a deduction if you paid $600 or more. Don’t forget charitable donations in your tax filing. Cash donations over $250 or a non-cash donation above $500 with receipts count as deductions.
File early if you’re expecting a refund
Some people immediately know if they are eligible for a refund — use that as motivation to file as early as you can, and cross one more task off your to-do list. Doing so will also give you a buffer in case there’s any governmental delay in sending the refund back your way.
“If you’re expecting a tax refund, file as soon as possible,” Dr. Salvador Gonzalez, a CPA and professor at Walden University, advises. “The pandemic exacerbated tax refund delays last year and millions are still facing coronavirus-related financial hardship. If you’re counting on your refund for something important, file as soon as you have the necessary documents.”
Use online software to save money
If you can’t really afford a CPA, but want to make certain your taxes are done correctly, Woroch suggests those who have uncomplicated tax returns and haven’t experienced a major life change should use tax software like TurboTax or H&R Block. The tax preparers can work with you on your return and also for an additional fee you can obtain audit protection.
Know when to hire a professional
But if you’re not completely certain on deductions, or have questions about out-of-state income and/or investment dividends, it might be in your best interest to hire a professional. People take on the hassle of filing their own taxes to save money, but if they fail to understand key information regarding deductions or nontraditional income, it might cost them more in the long run.
Instead, “Work with a tax preparer to figure out which personal or business expenses are deductible and determine what documents need to be saved,” Dr. Gonzalez suggests.
Woroch adds it might be helpful to hire a professional especially if the last year included a major upheaval of one kind or another. “Maybe you got married, had a baby, moved out of state, or got a divorce in 2020 — it’s going to make filing more complex. Hiring a professional will make your life easier and ensure accurate filing to avoid penalties on any potential mistakes.” And even if you didn’t experience a major life upheaval, you might want to call in an expert. If you get easily overwhelmed by the process or simply don’t have the time to dedicate to the meticulous task, an expert can feel like a saving grace or a necessary luxury, Woroch says.