The April 18 tax deadline for 2015 returns is just over a month away, so many people will be scrambling to get theirs filed on time. However, it's equally important to take your time and get it right. There are several things you should do before you file your tax return, and here are five of the most important.
Selena Maranjian: One of the most important things to do before you file your tax return is to give it a thorough review before stuffing and stamping that envelope or clicking "submit" for an electronic filing. There are a number of things you need to review, such as:
- Are you including all necessary schedules and forms?
- Is all the needed information included? For example, if you have investment accounts at several different financial services companies, you don't want to neglect reporting gains or interest or dividends for any one of those accounts.
- If you prepared your return by hand -- or someone else did -- is it legible? The IRS needs it to be clear, and illegible returns can end up being audited.
- Are the calculations in it correct? You don't want the IRS to come knocking because of a simple math error. Double-check any calculations in your return. (A key benefit of tax-prep software is that it minimizes the chance of math errors because the software makes the calculations for you.)
If you send in a clean, correct, and complete tax return, it's likely to be processed with few problems and with less of a chance of an audit or refund delay.
Matt Frankel: Some audits are triggered by specific items on your tax return, while others are simply chosen at random. While only about 1% of all tax returns get audited, you need to know that everyone is at some risk of the IRS taking a much closer look.
Therefore, before you file your return, you need to make sure you can document every single tax break you claim on your return. This is especially true if you have some "red flag" items, such as:
- A home office deduction
- Business use of a vehicle
- A high income
- Lots of business deductions
- Larger-than-normal deductions
- Any other unusual tax situations
You should save your receipts and other documentation for a period of no less than three years after the due date of your tax return. In other words, tax documents that support your 2015 return should be kept until April 18, 2019. The time period is longer if you file a claim for a loss from worthless securities (seven years) or if you don't file a return, even if you don't need to (keep them indefinitely).
Even though there is a risk of audit for anyone, the majority are "mail audits," meaning that they can be handled by simply mailing the appropriate documentation to the IRS. Organizing your documentation now can save you lots of time and hassle later.
Brian Feroldi: Once all of your paperwork is complete you should know if you will be receiving a refund from the government (lucky you) or if you will have to make a payment to make up for any shortfall. Regardless of which situation you find yourself in I recommend having a game plan in place for how you will be receiving your refund or making your payment before you file your return.
If you find that you owe and will need to make a payment then you should be aware of your options. The IRS accepts payments by check, debit card, or even from a credit card. Debit and credit cards might sound like a better option than writing a check, but its important to know that both of these options come with an additional "convenience" fee, so paying by check is likely to be the cheapest way to go.
It's also important to know that if you owe the IRS money and you do not think that you will be able to cover the entire payment in one lump sum then you can make arrangements with the agency to pay your bill over time.
If you are expecting a refund after you file your taxes then you also have several options available to you to get your money back. If you had your taxes completed by a tax preparation service then you might find that they will push you into receiving your payment from their "refund anticipation loan" program, as they will tell you that doing so will let you access your money right away versus having to wait for week until the IRS finally cuts you a check. That might sound like a tempting option but it's important to know that those loans often come with huge upfront fees and the company who is loaning you the money might charge an incredibly high interest rate, both of which could take a big bite out of your refund.
A smarter option might be to just request your refund back from the IRS via direct deposit as there is no charge for doing so. It typically takes the IRS about two weeks to get your your payment but it can happen in as few as 10 days, so if you can afford to wait you can save yourself from having to pay a bunch of unnecessary fees.
Dan Caplinger: All but a handful of states have their own state income tax, and one thing that surprisingly many taxpayers don't take into account is how their federal return needs to correspond to their state return. In many cases, the state tax return takes figures directly from the federal tax return. If those numbers don't match up, it will trigger a red flag, because the IRS and state tax authorities communicate closely with each other to verify and cross-check numbers.
However, state income tax rules are often slightly different from federal tax laws. In those cases, the numbers on your two returns won't correspond to each other, and if they did, that would suggest to tax authorities that there might be a potential mistake. For example, for federal purposes, Social Security income is subject to tax if you make more than a certain amount of total income. However, in many states, Social Security is completely tax-exempt regardless of your income. Therefore, the numbers you show as taxable income won't necessarily match up across your federal and state returns.
Before you file, take a look at both your federal and state returns. Scan for differences, and make sure you understand the reasons why any disparities are there. That way, you'll avoid any potential problems.
Jason Hall: One thing I've made it a habit to do each year before I submit my tax return, is to take some time and make changes to my current tax status as appropriate. This is especially true in years when my income or tax situation has changed, such as buying a home, a job promotion, among others.
The idea behind these actions, which include things like updating your tax status with an employer, scheduling quarterly estimated taxes if you're self-employed, or setting up automatic contributions to a retirement account, is to keep you from falling behind for 2016, or even -- heaven forbid -- getting ahead of the tax game.
This is especially true if you've ever gotten stuck with a big, unexpected tax bill on April 15 you may not be prepared to pay, or if you got a sizable refund that you weren't expecting to get. By taking the time to make these changes now, you'll be far more likely to have an easier time come tax season 2016. You'll also have a better understanding of your actual after-tax income situation, better preparing you to make financial decisions all year.
So before you click "submit" on your online tax filing, or give your tax preparer the go-ahead, make sure you've updated your tax-related situation for the future, and make it a regular part of your yearly tax preparation going forward.