Given that it's only January, you may not be at the point where you've got taxes on the brain. But the beginning of the year is actually a great time to start putting some thought into your taxes. First of all, you should know that while the tax filing deadline isn't until April 17, you can submit a return as early as Jan. 29 -- which, if you're anticipating a fat refund, is a move you may want to consider. But more so than that, filing taxes can be a time-consuming, and, yes, complicated process, especially if you're dealing with multiple deductions and various sources of income -- so it pays to start thinking about it well ahead of the deadline.
Stressed yet? There's no need to be. Regardless of when you decide to sit down and start knocking out that return, here are a few pointers that'll help the process run smoothly from beginning to end.
1. Compile a list of the paperwork you'll need -- and make sure nothing is missing
If you're reporting a salary on your tax return and nothing more, all you really need is your W-2, and you're done. But what if you did some freelance work for several clients on the side, and are also planning to claim deductions for mortgage interest and charitable contributions? In that case, you'll need 1099 forms and other such documentation to ensure that your return is filed accurately.
That's why it's critical to make a list of the paperwork you think you'll need to file your taxes, and then check off items as they arrive. Keep in mind that 1099s are typically issued by the end of January, so if you find that you're missing one come early February, you'll know to hunt it down.
2. Don't rush through the process
Speeding through the tax-filing process is a great way to increase your chances of making an error, and when that happens, one of three things might ensue:
- Your return will get flagged for an audit.
- Your return will get rejected outright.
- The IRS won't notice it, in which you'll consider yourself lucky.
Now I know what you're thinking: "Ding, ding, ding. I'll go with Door No. 3." But not so fast. The consequences of your error will depend on how egregious it actually is, but the chances of landing on Option 3 are relatively slim compared to the first two. That's because the IRS has software that's designed to flag returns whose information is clearly off.
A better bet? Give yourself ample time to complete your return. You know that you have until mid-April to get yours done, but if that doesn't happen, request an extension. You don't even need a compelling reason for it -- the IRS won't care as long as you submit that request before the deadline. That extension will then buy you another six months to get your taxes done correctly.
3. Expect to file electronically
Maybe you're a pencil-and-paper type of person who shuns technology as a matter of course. Be that as it may, if there's one piece of technology it pays to celebrate, it's the electronic tax filing option.
Why file electronically? It's simple -- doing so has been proved to reduce your chances of making a mistake. The IRS reports that the error rate for paper tax returns sits around 21%. The error rate for electronic returns, by contrast, is less than 1%. And at this point, you know what consequences a seemingly harmless blunder could bring about.
Another good reason to file electronically? If you're due a refund, you'll get your money sooner. The IRS typically issues refunds for electronic returns within three weeks, but if you file on paper, you won't see your money for six to eight weeks. Plus, there's something to be said about not having to battle crowds at the post office or lie awake at night wondering whether your tax return got lost in the mail.
No matter when you decide to start working on your taxes, the key is to get organized, give yourself ample time, and embrace technology when filing that return. Follow these tips, and you'll come away less stressed after all is said and done.