Whether you’re a full-time employee, a freelancer or a business owner, it’s never a good idea to delay straightening out your tax-related paperwork. According to USA.gov, the Internal Revenue Service (IRS) began accepting and processing federal tax returns last January 31, 2014. These are for overall expenses and earnings for the year 2014 – and you only have until the 15th of April 2014 to file your tax returns. The only exception is when you filed for an extension beforehand.
Filing Taxes: Ways to Save Money during Tax Season
Those who are barely out of college and just secured their first job may not necessarily be aware yet of the process behind filing their income tax returns. To give you a crash course on the topic, take a look at some answers to the most commonly asked questions regarding filing taxes:
When is tax season?
In the United States, the official duration of tax season is from January 1st to April 15th of every year. During this period, earning individuals and business owners prepare the previous year’s financial statements and reports to be submitted to the IRS. If you’re a business owner who has more than one employee, you should furnish the individual workers and contract laborers with tax documents so that they can complete their own tax returns.
Those who need to file their income tax returns are typically given a three-month period to complete all the paperwork. Some of the things that you might need are receipts, wage statements, payslips, official forms such as 1099s or W-2s, and similar paperwork.
What’s the deadline for filing my income tax returns?
Saving money during tax season is not a hard thing to do, as long as you are well-informed. As mentioned earlier, those who are required to file a tax return are usually given an April 15 deadline. If you need more time to put together all your financial documents, it is a must to request for an extension.
Should I calculate my own tax returns or have an accountant do it for me?
If you’re an average earner, it might be less tedious and expensive to calculate your own tax returns. On the other hand, if you have several sources of income and you would like to make sure that you are filing your returns correctly, it would be better to hire a tax preparer or an accounting professional to do it for you. Federal, state and local tax returns must be filed and if you are not familiar with these, you might not necessarily know where to start if you attempt to calculate your own tax returns.
How do I file for my income tax returns?
You can file your tax return with the IRS by going online at the IRS e-file, preparing the documents yourself, going to a tax prepare or requesting help at a local IRS office or volunteer site. Once you are scheduled to receive your individual federal income tax refund, you can get it via direct deposit, through savings bonds or by paper check. For more information about how to file your income tax returns, simply visit www.usa.gov.
Ways to Save Money during Tax Season
Although you are given until April 15th of every year to file your income tax return, the process should start in the current year. If you keep on putting off the task of straightening out your tax-related paperwork, you might not beat the deadline – even if you hire a tax preparer or an accountant because of their existing workload. Once the end of the current year approaches, that is the best time to think about the taxes that you will file. If you have a business, buying new equipment or doing some improvements can reduce the amount of tax that you will have to pay.
Here are some more saving money during tax season ideas, whether you’re a regular employee or a business owner:
Do a ‘dry run’ of your business and personal tax returns.
Let’s say that the start of the 2014 tax season is just approaching. What you can do to save money is to perform a ‘dry run’ of your business and personal tax returns. By the end of December, you should have a good estimate of the numbers that you already incurred for 2013. This will allow you to come up with realistic estimates. If it looks like you will be paying a lot of taxes, are there any expenses that you can rush through and use a deduction? There are plenty of other tactics that you can use, but having a clear picture of the numbers you will be working with will make things easier.
Put together all your tax-related documentation and divide them into several categories.
Once you have gathered all your paperwork for filing taxes, separate the receipts for charitable donations, medical expenses, educational expenses, miscellaneous expenses for the office, etc. Whether you’re doing your own income tax filing or hiring a tax preparer to do it for you, the process will be a breeze if all your documents are on hand and the receipts are already separated in different categories. Saving money during tax season is more important than you think!
Shift your expenses for the current year.
If you’re a business owner, the end of the year is an excellent time to purchase office supplies, manufacturing equipment or spend on anything that will go back to the business. Doing so will allow you to shift your expenses for the current year so that you can have a lowered reportable annual profit. This results to minimized taxes. You can buy office supplies, replace an old model printer, buy office furniture or think of a purchase that will benefit your business in the end.
Just be careful not to do so when paying out debts in cash, because it will not reduce the taxes that you have to pay – you will simply be adding another expense to the business for the current year.
Shift your income for the upcoming year.
Again, if you’re a business owner, another saving money during tax season technique is to shift your income for the upcoming year. Let’s say that you have a supplier who owes you money. Instead of asking him or her to pay by the end of December, give the supplier a grace period so that the income will be included in your January earnings. This is a perfectly legitimate way to reduce your taxable income for the current year. Do the same thing for any other revenue that you are scheduled to receive. If you are planning to hold an in-store sale, for example, put it off until January 1st so that the revenue coming in will be included in your next year’s tax returns.
What better way is there to reduce your taxable income than to donate? If you plan to donate to your sister’s charitable institution next year, do it before the year ends so that the amount can be deducted from your taxable income.
Consider opening a flexible spending account.
Once you become eligible for benefits at work, consider signing up for a flexible spending account. For this, funds are taken from your paycheck on a pre-tax basis. Not only is your taxable income reduced, but it is actually refunded when you submit the claims form from your benefits department. If you have a taxable salary of $100,000 per year, if you’re paying for child care, and once you submit a claim with the required receipts, as much as $4,000 of your earnings can be considered tax-free.
Take full advantage of the tax benefits of your retirement plan.
For both personal and business income tax returns, using a savings vehicle like a 401(k) plan can reduce taxes. Typically, you can defer over $50,000 income per year if you have a retirement plan. There are other retirement options where you might need to convert a portion of the funds to lower the tax implications, so study this option carefully. Saving money during tax season requires your entire attention, so make sure to avoid temptations.
Just because you have no income does not mean that you are not required to file a tax return.
Even if you were out of a job for an entire year and you had zero or very low income, it does not exempt you from filing a tax return. Always check with an accountant, a tax adviser or a volunteer at any IRS office if there is a need for you to file tax returns. Explain your situation and you might be surprised that even with a very low income or no earnings for the year at all, you will still be required to file income tax returns.
Plus, why not consult a professional tax adviser? If all else fails, consult a professional tax adviser. Owners of big businesses who have several employees need to hire an accountant to do a good job of balancing out their income tax returns. Although it is your obligation to pay taxes, there is no need for you to pay any more than you have to, either.
With the help of a professional tax adviser or accountant, your overall financial status can be assessed and adjustments can be made to lower the taxes that you have to pay, without having to break any rules on filing income tax returns. Saving money during tax season is really not that difficult, so why not do it?