If just the mention of tax season gives you a headache, we’re here to help. Here are Fricke & Associates’ do’s and don’ts for navigating tax season without the dread.
Do: Keep Your Financial Documents Organized and Secure
Keeping your financial documents organized throughout the year will be your biggest asset come tax season. It will ensure you accurately report income and don’t miss any deductions. This includes keeping your receipts because they will help you justify your deductions. Keeping organized will also help you navigate an IRS audit more smoothly. As long as you have nothing to hide and can produce documents to prove it, getting audited doesn’t have to be bad. It’s important to save your financial records, but they’re also full of sensitive information that identity thieves love, so keeping them secure is important. Ultimately, you’ll need to develop an organizational system that makes sense for you. For example, we recommend manila folders with the tax year written on the outside, and within the folder organizing with envelopes for each category (W-2s, charitable contribution receipts, business expense receipts, etc.) and storing all of that in a locked safe. Another option is to store all your records as password-protected digital files online.
Don’t: Throw Away Receipts or Financial Documents
After officially filing your tax return, you’d probably love nothing more than filing all the documents in the trash. But it’s important that you hold on to those records. If the IRS selects you for an audit, you’ll need to produce all the relevant financial records that went into preparing and filing your return. According to the IRS’ official guidelines for taxpayers, you must keep all relevant financial records for at least three years from the date you filed your original return or two years from the date you paid taxes owed, whichever is later. To be safe, we recommend keeping tax documents, receipts, and other important financial records for seven years after filing.
Do: Know Your Eligibility
There are some tax credits you might be eligible for, even if you are taking the standard deduction. For example, if you have childcare expenses or are paying higher education costs, these can help decrease your taxable income. You should check what is available to you before deciding how much to take off your taxes.
Don’t: Forget About the Deductions You Had Last Year
If there were certain deductions you claimed last year, be sure to include them again this year. You can use the same charitable donations or medical expenses if they still apply. Tax deductions add up quickly, so you need to stay on top of those you can apply to the current tax season. This could translate into thousands of dollars.
Do: File on Time or File for an Extension if You Need One
The best practice is to file early. But if your taxes are complex and it’s too late to give yourself enough time to do them at a comfortable pace, don’t panic. Every taxpayer is entitled to an automatic six-month extension on filing their taxes. The easiest way to claim this extension is to visit the Free File page at IRS.gov and file online. You can also fill out Form 4868 and mail it to the IRS. We can file an extension for you if you work with Fricke & Associates.
Remember that even if you file for an extension, you still have to pay any taxes owed by April 15. So how can you pay your taxes if you haven’t prepared your return yet? You’ll need to estimate your tax liability as best you can. If there’s any uncertainty, err on the side of overpaying since underpaying can lead to penalties and additional liability.
Don’t: Wait Until the Last Minute
It’s easy to procrastinate on things we don’t enjoy. The best way to avoid procrastinating with your taxes is to break the process down into smaller steps that you can do over several sittings. There’s no need to do your taxes in one long session; doing so will fatigue you and make you much more prone to mistakes. Also, don’t avoid filing because you can’t pay the taxes you will owe. It is always better to file taxes on time no matter how much you owe because the IRS levies separate penalties for failing to file on time and failing to pay on time. Filing late when you owe money means you’ll get hit with both penalties.
Do: Prepare Your Tax Return Truthfully
Tell the truth, the whole truth, and nothing but the truth. Even if you can’t pay your tax liability on time, file a truthful and accurate return on time (or file for a six-month extension on time). The IRS offers options to help you repay your tax liability over time and possibly for less than the full amount owed. No matter how much you owe, filing truthfully and confronting your tax liability is better than living in fear of an IRS investigation and potential criminal consequences for fraud.
Don’t: Fill Out a Tax Return With False Information
Of all the tax mistakes you can make, purposely filling out your tax return with false information is the worst. If you knowingly put false information on your tax return, you’re committing a crime (a felony), and there’s a good chance the IRS will investigate you and catch you. The consequences of tax fraud can include massive fines and prison time.
Some people file falsified tax returns out of greed, but others commit tax fraud because they’re afraid they won’t be able to pay what they owe if they file truthfully. However bad you think your tax situation is, we can promise you two things based on our decades of tax resolution experience: first, there is always a lawful way to resolve your tax liability; and second, no matter how bad you think your situation is now, the consequences of filing a falsified return will be much, much worse.
Do: Work With a Professional
When you work with a professional, you must keep your documents organized and turn them over, and the professionals handle the rest. Many business owners still attempt to handle their taxes on their own, which will likely not provide ideal results. For this reason, it’s highly recommended that you work with a professional; it could even save you money. Hiring Fricke & Associates gives you access to all the expertise, tools, and experience of our 22 years as leaders in tax services. It takes away the headache of wondering if you are doing everything correctly. If your taxes are complex and even breaking them down into smaller tasks feels daunting, contact our team at Fricke & Associates. We are committed to helping ease your worries and provide objective, insightful advice to empower you to make informed decisions.