This is a special post from AverageJoe discussing the topic “Best Tips for Your Taxes.” You can see my post on the same topic at Joe’s site.
Ah, tax time! The smell of sweaty foreheads and the twitch of nervous fingers signing a 1040 with many eraser marks.
It’s not my favorite time of year, but like family during the holidays, I just remember to hang in there and it’ll all be over in only a few days.
The good news is this: you don’t have to sweat or shake if you know just a few simple tips to scan your 1040 for last minute adjustments or corrections.
The other good news is this: I plan to give you, for free, those five steps today. Thank Eric for swapping with me today if you like them. Blame him if you don’t.
Either way, here they are:
My Top Five Last Minute Tips
In no particular order, here are what I’d always look for when reviewing someone’s 1040:
- Name, rank and serial number, soldier! The IRS reports that one of the most frequent mistakes is forgetting to sign your return or use your correct name on the form. Another dandy: people forget to include the right Social Security number.
Hint: If you’re eligible, e-file to catch all of these mistakes. How do you know if you’re eligible? Check out the IRS free-file website.
- Gifts to charity. Want to wave a big fat red flag in front of the IRS? Try this: forget to itemize your charitable contributions. The IRS recently cracked down on charitable donations. Provide proof of your gifts by attaching receipts to the return. Make sure the organization is an eliglbe organization (ask if your favorite charity is a legal 501c3 organization before you gift.)
Hint: This is a confusing area for many, so the IRS provides a a thorough resource: IRS Pub. 526, Charitable Contributions. Scan this for answers to your specific questions.
- Are you an educator? Do you own a business? Educators are allowed to write off up to $250 each ($500 if a married douple filing jointly are both educators) of unreimbursed eligible school supplies. Although many know about this, I’ve seen plenty of educators forget to include this deduction. I’ve seen too many new business owners try to save a few bucks by doing their own taxes….only to miss many of the slew of opportunities for business expense deductions available to business owners.
Hint: If you own a business, you owe it to yourself and the success of your operation to seek solid professional advice.
- License plates. There’s considerable confusion among taxpayers over whether you may deduct license plate costs. Here’s the deal: while your driver’s license is considered a personal license fee and is non-deductible, your license plates are considered a tax and may be deductible.
Hint: Here's how to tell if your license plates are not deductible: find out what criteria your state uses to determine the fee. If the fees are based on the value of the car, you may deduct the expense. However, if they're based on weight and value, you may only deduct the portion that's applicable to the value. If everyone is charge the same amount, it's considered a personal license and isn't deductible.
- Look for IRA opportunities. Last year, I found that my writing income, while small, was still big enough that I could fund my SEP account (a type of IRA for self employed people). By sheltering money this way, I was able to score a bigger refund from the IRS and save money for retirement at the same time.
Hint: IRA contribution caps and income limitations are listed in this IRS document: IRS Pub. 590, Individual Retirement Arrangements. Bookmark this page. If it were an actual book, my Pub. 590 would be dog-eared and coffee-smudged because I’ve referenced it so often.
In closing, while not a tip per se, I’d ask a close friend who’s tax savvy if they wouldn’t mind perusing your return before you send it in to the IRS. Maybe you’ll have to entice them with their favorite foamy or non-foamy beverage. Besides helping you avoid costly mistakes, they may find a few esoteric opportunities such as deducting medical costs, business item depreciation or professional license costs.