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My Three Best Tax Filing Tips


Before we dive in here, let me make a couple things clear:

  • I’m not a tax expert. (I leave that for Amber!)
  • I find doing taxes about as titillating as most people…somewhere between Latin verb conjugation and flossing.

That said, I’ve learned a few things about paying (and filing) my federal income taxes over the past few years, and as a financial blogger I feel compelled to share them. I’ll make this short and sweet. Promise.

1. START YOUR TAXES EARLY

I have filed my taxes around 11:52 p.m. on April 15th more than once. Two years ago, I even filed an extension. Yet all I did by waiting so long was prolong the stress. (I’ve found that actually filing taxes isn’t so bad—it’s the anxiety leading up preparing the return. Will you owe Uncle Sam? Will you make a mistake and get audited?)

So last year, I got my shit together and had all my documentation ready to hand over to a bookkeeper in early February. I filed on my own using TurboTax, but paid her to double check everything…especially my business records. It was a huge relief.

So I stand by this: the sooner you start thinking about taxes, getting organized, and filing, the better off you’ll be. (And, of course, if you’re owed a refund, you can collect it sooner.)

2. ORGANIZE, ORGANIZE

Until a couple of years ago, the only documents I needed to do my taxes were the W-2s my employers mailed me in January. As you get older, however, your taxes get increasingly more complicated and that means there’s a lot more to keep track of. Things like:

  • 1099s from contract employers, savings accounts, and investments.
  • Business expense receipts.
  • Student loan and/or mortgage interest statements.

Some things that have made my taxes infinitely easier:

  • Opening a separate business checking account.
  • Using the online bookkeeping program Outright for my business’ books.
  • Starting a folder last January for this year’s taxes and filing everything I might need in it.
  • Using the same tax software year after year (in my case, TurboTax, so last year’s return information is automatically loaded).

3. PAY UP

Whatever your political stance on paying taxes, however badly you need a big refund, and however else you decide to rebel against the establishment, I recommend paying your taxes. All of them.

  • That means reporting cash tips.
  • That means reporting all of your freelance income.
  • That means not taking the home office deduction when, really, you use that corner of your bedroom for work about 10 percent of the time.

Last year, I received a CP-2000 letter, a.k.a. a correspondence audit, for a couple of errors on my 2008 return. I owed a little more money, which I paid, and it wasn’t a big deal, but there is nothing fun about a surprise letter from the IRS saying you owe more taxes. Take every deduction to which you’re entitled, but if you’re in doubt—you know, the kind of doubt where a little devil and angel appear on your shoulder (and, perhaps a prison cell briefly flashes through your mind)—I recommend listening to the angel every time.

Got taxes on your brain? Take my first tip and get started on your return today with TurboTax—it’s free to start and even to file your federal return.

Chime in: What’s your favorite tax filing tip?

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. Another reason to file early is that you will actually get a refund. In California the last few years, the people who filed in March got a big fat IOU from the Governator. By filing in February, I was able to get my refund check before that went into effect.

  2. Outright is pretty interesting! How is it free though? Looks like it is $9.95 a month?

    • David Weliver says:

      Wow, thanks for the clarification. I joined a long time ago when they were still in beta and were free…I must be grandfathered in cause I had no idea the started charging! It’s still an awesome service, although if I had to pay $10 a month I don’t know if I’d use it instead of Quickbooks or other bookkeeping software…

  3. I’ve heard that I can deduct student loan interesest payments in addition to taking a standard deduction…is there any merit to this? Also…good post.

  4. Matt think about the question you just asked. “Is there any merit to taking a legitimate deduction on my income in addition to the standard deduction?” Of course! This has nothing to do with whether you itemize or take the standard deduction. It is in a separate section of the form altogether.
    You should deduct your student loan interest. Your lender will be sending you an official form to report how much interest you have paid over the course of the year, and this should be the amount you can deduct from your income (unless there is a maximum limit I am not aware of, my interest is not very high so I can always deduct all of it).

    My only caution against filing early is to really emphasize the ORGANIZED part. I love filing early but this has caused me more than once to have to file a correction because some little account I forgot about will send me the interest statement late. This means more income than I initially reported, and then I have to file a correction.
    So as long as you account for ALL sources of income coming to you in the year, it is a golden feeling to file early.

  5. David Weliver says:

    Matt, Amber’s right. As long as you didn’t earn TOO MUCH to qualify, the student loan interest deduction is IN ADDITION to the standard deduction. Definitely take it.

    Amber, you bring up an important point about filing too early and having to amend your return. The best of both worlds is to START your return early (i.e., get organized) but not file until March or early April when you can be fairly confident all’s in order.

  6. The Oil Barron In Training says:

    I happen to fall under one of the most heavily taxed categories: Young, single, no house, no kids, no dependents, and a 6 figure income. Seems like there are no tax breaks for my kind. Is there anything I’m missing as far as tax breaks go or do I just have suck it up and pay in full?

    • @ Oil Barron – I have an unrelated question (sorry). It has to do with the oil industry. Are you in that industry? coz I a few questions to ask. It has to do with logistics in oil. A friend and I want to get into an entrepreneurial venture concerning oil but we have little experience here. Plz let me know if you can offer some advise. Thanx!!

      • The Oil Barron In Training says:

        @ Ezekiel – I am in the industry, I am an engineer, however I do work with logistics all of the time. I would be glad to help you out.

        • @ oil Barron – GReat!!! Here is my email address “ojode01@luther.edu” or “eojo@kpmg.com”. Send me an email and we can start from there. Thanx a lot!!!

    • I’m in the same category as you and talked with someone from an investment firm and there really isn’t much you can do besides buying a house (and that just adds other issues). What I do is max out my 401k (the full 16.5k) with pre-tax dollars which cuts slightly on the amount I pay in taxes and puts that money to good use. Depending on how far into the 6 figures you are, it could potentially pull you down into a lower tax bracket too. Another trick I found is that if you set your exemptions “too high” so that they’re not withholding enough from your paychecks and then just pay it off at the end of the year, you get to keep all the interest you earned with the extra money that was in each paycheck that ended up in your savings. If you use a high yield savings that can offset the taxes some too.

      In the end though, yeah, you just have to suck it up.