6 Tips To Prepare for Tax Season
Tax season is almost here, so it’s time to get ready. Here are six tips to help you prepare and make filing your taxes as easy as possible.
It’s important to have everything in one place. As you receive tax documents, such as your W-2 and 1098 or 1099 forms, place them in a large envelope or file folder. Gather receipts and documents for charitable donations, tax payments and other deductions, and put those in the folder too. When it’s time to complete your tax return, you’ll be ready. However, not everyone may be as organized as you are and some documents may not be ready on time.
Maximize contributions to your retirement plan
Try to contribute the maximum amount allowable to your employer’s 401(k) or deferred pension plan. Your contributions are tax-deferred and grow tax-free. Not only do you get a tax benefit, but you also might get matching funds from your employer.
Consider making a contribution to a traditional or Roth IRA if your company doesn’t have a retirement plan. You may get a tax deduction for your contribution to a traditional IRA. Both types of IRAs offer tax-deferred gains.
Remember the EITC
If you earned less than $53,505 in 2016, you may be eligible for the earned income tax credit (EITC). The IRS states that one out of every five workers fail to claim the credit. If you don’t know whether you qualify for the EITC, use the EITC Assistant tool.
Make withholding adjustments
Check your year-to-date withholding. Are you expecting a large refund? If so, think about changing the amount of taxes withheld. If you plan on claiming the earned income tax credit (EITC), this is very important. A new law requires the IRS to hold all refunds on returns claiming EITC until February 15 to prevent tax fraud. If you decide to change your withholding amount, complete Form W-4 and submit it to your employer.
Donate what you no longer need
Do you really need all the clutter around your house? Make a New Year’s resolution to clean out your closets, attic, basement and other storage areas, and donate those items to charitable organizations. A charitable donation deduction is limited to the donated good’s fair market value, and the item must be in good or better condition. You have to file Form 8283, Noncash Charitable Contributions, if the value of noncash donated items is more than $500.
Take advantage of education tax breaks
You may receive tax savings if you, your spouse or dependents had high education expenses in 2016. The American opportunity credit, the lifetime learning credit, and the tuition and fee deduction all offer tax benefits. Various requirements may limit your benefit. Use the Interactive Tax Assistant tool to determine which one is best for your tax situation. You’ll need Form 1098-T, which your school will send to you, to complete IRS Form 8863, Education Credits.