Happy Returns: 5 Tips for Filing Your Taxes

Whether you’re doing your taxes independently or getting professional assistance, it’s helpful to know some basic guidelines. Photo: American Ratings Corporation (2017)

With the holidays behind us, it’s time to get ready for the next seasonal milestone: tax season. While few would consider it “the most wonderful time of the year” (save for those expecting a substantial return), it doesn’t change the fact that tax season is something we all have to partake in. Anyone who has gone through the process knows that filing taxes can be difficult and frustrating, which is why it helps to know a few basics out of the gate. Whether you’re filing your taxes independently or having a professional handle it for you, check out these tips from industry experts on maximizing your return:

1. Get organized.

One of the biggest challenges of filing a tax return is gathering all the necessary paperwork to report income, credits and deductions. Rather than waiting to see what shows up in the mail, Andreas Dleske of Davis & Company suggests getting ahead of the game by making a list of tax documents you should expect to receive. “Start by looking at the forms you included in your previous year’s return, many of which you’ll likely need for the current year,” he says. “Also, consider any new developments. For instance, if you’ve recently retired, you’ll need to start reporting any income from your pension or similar sources. Having a checklist of all the different forms you’re going to need can save you a lot of time and hassle.”

Additionally, Jong Lee of The Lee Accountancy Group, Inc. says you’ll need documentation for any write-offs, including charitable contributions. “If you’re planning to deduct the $500 you gave to your church last year, the IRS will want to see concrete proof of that donation. So, whenever you make a charitable contribution, remember to obtain official documentation.” Typically, churches, nonprofits and other organizations that accept contributions will provide receipts, either at the time of donation or the beginning of the following year.

2. File early…but not before you have everything you need.

There are many advantages to getting your taxes done early—the obvious being a faster turnaround on your refund. However, Russell Barnett, EA gives an even better reason to file promptly. “Tax return fraud is on the rise,” he warns. “Here’s how it works: a perpetrator will steal a person’s identity, file a false tax return under their name and claim the refund. When the actual person goes to file their return later, they’re unable to do so because someone has already filed with their social security number. By filing early, you reduce the chances of this happening to you.”

While filing early is smart, Mr. Barnett cautions that you still need to wait until you have all the requisite documentation. “Most stock brokerage firms don’t issue their 1099s until the second or third week of February, so if you sold stock during the year or received dividends, you won’t have all the information you need to file in January,” he explains. “If you get that information after you’ve already filed, you may have to file an amendment, which will require additional time and resources on your part.”

For those concerned about tax return fraud (particularly prior victims of identity theft, who are at higher risk), Mr. Barnett says there are steps you can take to protect yourself. “The IRS has a page on their website where you can let them know if you’ve been a victim of identity theft. They’ll assign you a six-digit ‘identity protection pin’ that’s associated with your social security number, which you’ll be required to enter when you file your return online. This is one of the many strategies the IRS is employing to prevent tax return fraud.”

When filing your taxes, it’s often helpful to reference your previous year’s return. Photo: American Ratings Corporation (2017)

3. Make sure you’re taking full advantage of write-offs.

If you’re a small-business owner or independent contractor, you probably keep track of expenses to write off on your taxes. However, even if you’re diligent about recording business-related mileage and meals, you may be missing out on other tax-saving opportunities. For example, deductible mileage doesn’t only pertain to the distance driven to and from jobs; you can also deduct miles driven to the store for supplies and even to your tax preparer’s office.

Additionally, Virginia Passarell of Passarell Tax & Bookkeeping Services says it’s possible to deduct areas of your home that are being utilized for business purposes. “For plumbers, painters and other tradespeople who store supplies in the garage, that area becomes tax-deductible square footage of their home, as long as it’s exclusively used for storage of company property. Even stay-at-home moms who sell products like Mary Kay or Tupperware can write off the square footage of a closet used to store inventory.”

Furthermore, as tax laws continually evolve, Ms. Passarell recommends periodically reassessing your write-offs to make sure you don’t miss out on new opportunities. “For example, things have changed in the ‘Meals and Entertainment’ category,” she explains. “It used to be you could only take a deduction if you paid for someone else’s lunch, but now, even if you’re only paying for your own meal, you can still get a 50 percent deduction as long as it’s business-related. This is just one example of the nuances that emerge as tax laws change over time.”

4. If you need tax assistance, look locally.

These days, large tax preparation companies like H&R Block are advertising more heavily than ever, but according to Ms. Passarell, you’re better off going to a local CPA. “One of the biggest problems with going to a ‘big box’ tax firm is their ‘one size fits all’ approach,” she says. “The fee you pay is based on which forms you access, regardless of the size of your income or return, and the tax preparers who work there have no control over that fee. In contrast, independent tax preparers are able to modify their fees to fit individual cases.”

Furthermore, Ms. Passarell says a local tax preparer provides a personal touch that big companies simply can’t. “When you work with a local tax preparer, you get that personal attention and develop a relationship over time. Believe it or not, this can actually affect your tax return. For example, I had a client come in whose taxes I’ve been doing for years. She had a friend with her, and during the course of our conversation, she casually mentioned that her friend was living at her house. I said, ‘Do you realize you can deduct part of your home if you’re renting to her?’ Just based on our casual conversation, an opportunity arose for an additional tax deduction. You generally don’t get those kinds of conversations when you go to a big box firm.”

5. Get a jump on next year.

While filing your taxes before April is smart, if you want to make sure all your bases are covered, consider meeting with a tax advisor prior to the end of the tax year. Sound like overkill? Not the way Mr. Lee sees it. “I always recommend that my clients meet with me in December so we can go over their upcoming tax returns,” he explains. “Since the year hasn’t ended yet, there’s still time to take advantage of opportunities such as maximizing your IRA contribution or increasing your write-offs through charitable donations. If you’re a business owner, there are ways to optimize your situation in the coming year as well. However, if you wait until March, it’s too late to do anything—that ship has already sailed.”

To find a Diamond Certified company that can assist you with filing your taxes, visit www.diamondcertified.org.