Josh Elledge - Chief Executive Angel
8 basic things every taxpayer should know at tax timeNote: I am not speaking as your professional tax advisor. Everyone's situation is different. When in doubt, you should seek tax help from a professional.
#1 – Know the filing deadline. The filing deadline is normally April 15 every year. However, it does vary in years when the 15th falls on a holiday or a weekend. For 2016, the deadline is actually Monday, April 18th.This is because of the holiday, Emancipation Day, which is a celebration of the day President Abraham Lincoln signed into law the bill ending slavery. The anniversary is actually April 16, and is honored yearly in Washington D.C. Due to the 16th being a Saturday this year, Emancipation Day will be celebrated on the 15th, pushing Tax Day to Monday, April 18.
#2 – Claiming a home office is very strict, but don't skip it if you truly qualify. Over recent years, claiming deductions for a home office became more difficult – so taxpayers began avoiding it, due to the semi-myth that it “red flags” returns. Tax codes were updated to really crank down on what can be considered a home office due to the rise in home-based businesses and entrepreneurial enterprises. However, if you do have a home office that qualifies, don't shy away from claiming it. These expenses can go a long way to reducing your overall tax liability. For example, you can claim 20% of deducible mortgage interest and real estate taxes; and 20% of home maintenance, insurance, and utilities, according to IRS.gov.
#3 – You could be wasting your time preparing to itemize. Unless you have an home office, have enormous charitable donations, large medical expenses, and/or have high mortgage interest and real estate taxes, keeping all those receipts all year, and adding up every little expenditure could be a waste of your time. Of course, each taxpayer should carefully calculate which is better for their situation – to itemize or not to itemize.To itemize, your combined deductions need to exceed the standard amounts. For 2015, filing in 2016, the baseline standard deductions are: $6,300 for single or married, filing separately; $12,600 for married, filing jointly or qualifying widow(er); and $9,250 for head of household.
#4 – Filing an extension does NOT give you more time to pay your taxes. Simply filing for an extensiononly gives you more time to file your tax returns – it does not also give you more time to send in the money you owe. You are still required to send in your estimated tax amount by the April deadline, even if you are granted an extension. Failing to do so will get you audited when you finally do submit your tax return forms.
#5 – You probably don't need professional help filing your taxes. Even though the tax code can be overwhelming and intimidating, current self-filing software makes tax returns very easy. They are designed to walk you through, step-by-step, and help you by asking questions. Most tax software also comes with access to free professional advice if you do get stuck. So unless your taxes are complicated, or numbers and official forms are just not your thing, don't pay the high prices of a face-to-face tax preparer who is typically required to charge you for every form they fill out. Check into the much lower cost of self-filing software.
#6 – If you get a huge tax refund, you're loaning the government your money all year. And at no interest. Unless your refund is due to additional tax credits (such as the Child Tax Credit), if you get a good-sized refund – tweak your deductions for 2016 and keep more money in your bank account, instead of the government's.
#7 – You may qualify to deduct medical expenses. In order to deduct medical expenses, you must have over 10% your adjusted gross income in out-of-pocket expenses. (7.5% if you or your spouse is 65 or older.) Aside from the obvious doctor bills, if you pay your medical insurance premiums with after-tax dollars, those count; as do things like transportation costs to and from medical care, and prescription costs not covered by a health care plan. However, you will need receipts and proofs for any claimed amounts, in case you are ever audited.
#8 – Filing early can help protect you from identity theft. Obviously, this truth isn't much immediate help, as the filing deadline is so close, but taxpayers should know about this epidemic. A higher and higher percentage of taxpayers are the victims of tax return fraud every year. Thieves simply file very early, using stolen social security numbers and birth dates, and make off with the refund money. Then, the real taxpayer finds out when they file and their return is rejected. The worst part is the fraudsters are rarely caught, and the burden of proof of identity, all the paperwork, months of waiting, and appearing at an IRS office fall solely on the victim.
