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