How to Rock Your Tax Return
In less than 2 weeks, your taxes are due to the Internal Revenue Service.
As of February 3rd, 2018, my taxes were filed. I got a nice big refund from Uncle Sam, because for whatever reason, I still let the government borrow my money from me interest free. But, I did use that chunk of change to pay off my Jeep.
Financial planners will tell you to take as much of your money home with you as possible, which is probably a better strategy, but there's something that just makes you feel like a rockstar when all the sudden thousands of dollars show up in your bank account. 😎🤑
For the record, I have super complicated taxes. I own a rental property, I own an LLC, and I do random 1099 work, on top of working a regular W-2 job. With tax season right around the corner, here are a few tips to make sure Uncle Sam isn't taking you through the ringer.
Ambition in America is still rewarded . . . with high taxes.
1. Not Your Filing Taxes By this time, you should have all of your W-2s from your employer. If you haven't, you can kindly remind them that the deadline for a business to send W2's to its employees is January 31st. If you don't receive your W2's by February 14th, you can call the IRS for assistance a 1.800.829.1040. Be prepared for a wait. 🙃 Ok, so assuming you do have your paperwork in order, FILE YOUR TAXES. Not doing so can lead to costly penalties, garnishing of your wages, lawsuits from the IRS, and a whole mess of things you don't want to get into. Turbo Tax, H&R Block and TaxAct are all good, viable options to help you file. If you're like me, and have super complicated taxes, it is probably worth taking your taxes in somewhere - I don't do this, only because I'm stubborn and have been doing my taxes long enough that paying someone to do them seems silly. And I'm kind of a closeted nerd and actually sort of enjoy doing my taxes. 🤓 2. Not Taking Full Advantage of Tax Deductions You can deduct a LOT of things. No, really! Here are a few resources to help you get started: https://www.gobankingrates.com/personal-finance/49-special-tax-deductions-dont/1/ http://www.wisebread.com/get-a-bigger-refund-with-these-often-overlooked-tax-deductions 3. Not Withholding Enough Federal and States Taxes If your goal is to get a refund check at the end of the year instead of paying in to Uncle Sam, you may want to increase your withholdings. There are 2 ways to do this:
a) If you are an employee, you can update your W-4 form, and there are 3 ways to do this. You can withhold at the higher single rate (box 3), claim zero allowances (box 5), and withhold an additional amount per paycheck (box 6). Or...
b) If you are a business owner or you are self-employed, you can use the 1040-ES form and pay estimated taxes up to four times per fiscal year. Doing so will allow you to avoid paying a lump sump every April. Note that there are 2 schools of thought on taxes. Is it better to pay in at the end of the year? Or is it better to get that refund check? Here are the pros and cons of each strategy: https://www.clearpoint.org/blog/is-it-better-to-owe-taxes-or-receive-an-irs-tax-refund-check/ 4. Not Contributing to Retirement Accounts There will be a point in your life where older you will thank younger you. This is particularly true if you've set up a retirement account.
When you contribute to things like a 401 (k) Roth, or Roth IRA, you lower your taxable income. If you haven't set up a retirement account yet, look into it!
"How did it get so late so soon? I don't call it late - I call it 'chronologically challenged'"
As the saying goes, the best time to plant a tree was 20 years ago - and, well, you can read the rest. Anyway, time is on your side - especially when it comes to compounding interest. There are plenty of financial experts out there, so find a reputable one that fits within your budget.
5. Not Challenging the IRS/Dept. of Revenue
A few years ago, I got letter in the mail saying that I owed the Minnesota Dept. of Revenue $3,800. I don't know about you, but I don't really have an extra $4K lying around. But, it was from the IRS, on official IRS letterhead, so I thought, "Well, I better sell a kidney. Or at least get a part-time job."
But I couldn't help but think, "You know. I'm pretty good with my taxes. I'm not sure how I could have messed up $3,800 worth of money." So I did some investigating. I called the MN Dept. of Revenue, and it turns out there was an error on their end. Shocking, the government being incompetent, I know.
Turns out, I didn't owe them ANY money. All I had to do was resend a copy of my 2013 - it was 2016 at the time, and they needed my 2013 tax return. Which, goes back to the whole point of FILE YOUR TAXES! And Also, DON'T TRUST THE GOVERNMENT!
Viva la revolution, baby.
Yes, the IRS can be extremely intimidating, but they're not always right. Don't let them boss you around. If they were trying to suck $$$ out of me, you know I'm not the only one their sending letters to for massive amounts of money that may or may not be owed to them!
What do you do to prepare for tax season? Do you pay in or do you prefer a refund? If you get a refund, what do you do with the money?