Wednesday, March 18, 2015

[NEWS] As Tax Day Approaches - Get 6 Tips from the Experts

As we near the dreaded April 15th, there are many people who have still yet to tackle their taxes. As Charles Schwab published earlier this month, "There's no question that preparing your tax return can be a daunting challenge. And the more complex your finances, the more complex your tax return."

CFP President, Carrie Schwab-Pomerantz points out six essential tips for preparing for tax day.

1. Have identification number handy

This can include key pieces of information such as birthdays and social security or tax ID numbers for yourself as well as any/all dependents and co-filers.

2. Collect documents that show earnings

Depending on your income type, you may need to gather several different kinds of forms.

  • Regular employment = W-2 form from employer
  • Income from interest, dividends, capital gains, freelance work or Social Security = 1099 form (copy sent to the IRS by the issuing institution)
  • Self-employment or alimony = no specific form but you'll need either bank statements or personal records

You should have received these forms in January or February so be sure to follow-up if anything has not arrived. Remember that just because you did not receive a form, you must still include all income on your tax return.

3. Gather documents that reduce your taxable income

Just as it's important to be able to provide documentation for your income, you should also assemble documents that pertain to "adjustments to income." As Schwab-Pomerantz points out, these can include contributions to a traditional IRA, contributions to a health savings account, alimony paid, qualified student loan interest, higher education expenses as well as moving expenses if you moved for a new job.

The previous total from section #2 would give you your gross income. By subtracting these adjustments from this section, you would calculate your "adjusted gross income" or AGI.

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4. Have appropriate records and receipts for itemized deductions

Now it's time to decide whether to itemize your deductions or take the standard deduction.

  • Itemized Deductions = mortgage interest, medical and dental expenses that exceed 7.5% of your AGI, state & local taxes, property taxes, charitable contributions and casualty/theft losses.
  • Standard Deductions = $6,200 for singles or $12,400 for married filing jointly

 If the sum of your itemized deductions is greater than the standard deduction, then that's the way to go - however Schwab-Pomerantz stresses that it's important to have records and receipts to prove your deductions in case of an audit. Click here to read more about deductions.

5. Don't forget about tax credits

It's important to remember that there are a number of tax credits that may benefit you for things such as child & dependent care, qualified adoption expenses or an electric car. Again, you will need documentation to prove you qualify for any tax credits you claim.

6. Create a filing system for next year It's possible that you enjoy being a perpetual procrastinator but ideally, once you get a handle on this year's taxes - setup a system so that next year won't be as stressful. Set aside a box or folder on your computer to keep track of documents and receipts. You can also keep a notebook with information and notes to remember regarding earnings, deductions and credits. It's likely that no one enjoys doing their taxes but a little organization now could make the process less painful in the future.

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All information provided in this publication is for informational and educational purposes only, and in no way, is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Midwest Equity Mortgage, LLC does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Midwest Equity Mortgage, LLC do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.

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