With one week before the deadline, many people are just starting to think about filing their tax return. The problem I’ve often encountered with waiting to the last minute is it’s easy to miss important items. Many years ago, I filed in the manual style: my only tools were a calculator and pencil. Although my tax situation was much simpler back then, with no real investments and only a W2 to report, with the most confusing item a tax credit for student loan interest, I still managed to make a mistake.
A miscalculation came back to haunt me when the IRS found my error and politely informed me I owed an additional three hundred dollars. This was at a time I didn’t really have much money. Life has moved on since then, and I progressed to online tax filing, first with TurboTax, then with TaxACT. Even more recently, I’ve begun working with an accountant. He does the dirty work now.
If you’re just starting to prepare your taxes now, don’t panic. Here are some suggestions for making sure you get it right.
File for an extension
I’m filing for an extension this year. Here’s how to file a tax extension for free — the method I used. If you haven’t organized your documentation throughout the year, taking more time to get it right doesn’t hurt. The IRS will automatically extend your deadline for filing to October 15 if you ask.
If you file an extension and end up owing after you calculate your tax return, if you didn’t pay by the original due date of April 15 (or April 18 this year), you’ll owe additional penalties as well as interest. So if you expect to owe, send in a check for the estimated amount when you file your extension.
Most software will allow you to file your extension request online, including an electronic payment of your estimated bill. If you do a poor job estimating your final bill, you could still owe penalties and interest, but any guess is better than none.
Contribute to your IRA
You can fund last year’s traditional or Roth IRA up to the maximum until the tax due date of April 15 (or April 18 this year). Even if you file for an extension, you won’t receive extra time to make this type of retirement investment.
Don’t wait until the eleventh hour
If you are filing your taxes online, don’t wait until the last second. While most major software companies have strong enough hardware to withstand millions of people filing at the same time, you don’t want to take any chances in filing late due to glitches beyond your control. With my luck, the hour I need to be online to file my taxes before midnight would be the hour my internet service provider decides to do “routine maintenance.”
Carefully consider all of your credits and deductions
The tax code seems to grow more complicated each year, and many people who file by hand will miss certain new deductions. It’s overwhelming for someone with a life consumed by other responsibilities to remain current with the latest tax law changes. I’ve found it helpful to use online software that walks you through every deduction. It’s less likely you’ll miss something, as long as you pay attention to the software’s questions and answer accurately.
Make sure you look at these credits and claim them on your return if you qualify:
- The American Opportunity Credit. This $2,500 credit is a beefed-up version of the Hope credit for college expenses.
- The Fuel-Efficient Car Credit. If you purchased a vehicle on or before December 31 that fits certain specifications, you could qualify for this credit. This is geared towards hybrid, alternative fuel, and electric cars.
- The Home Energy Credit. Some energy-efficient improvements you make on your home will qualify for this tax credit.
- The Home Buyer Tax Credit. This credit, now available to long-time homeowners rather than just first-time home buyers, has been extended for military personnel. This can still be claimed on the latest tax forms. Here is how to claim the new home buyer tax credit; you will need special documentation. Keep in mind that if you purchased a house under the original tax credit in 2008, you will need to begin repaying the credit this year.
Pay attention to the details
If you’re filing online, you won’t be able to proceed without providing your Social Security Number. Taxpayers who complete their return by hand are more likely to make this mistake. Software won’t tell you if this number is wrong, however. Also, check to ensure your name and address is spelled correctly. If you entered banking information for direct deposit of a refund, verify the routing and account numbers are correct.
Triple-check your numbers
Once again, filing using software like TurboTax is ideal. Built-in algorithms check your work, but they won’t catch all errors. Match the numbers you typed or wrote with the numbers on the forms you receive such as W2s and 1099s. Check to make sure you’ve included all your income. Count your receipts if you’re deducting business expenses.
Don’t forget to sign your form. Once again, if you file fully online, your electronic signature will be required. If you file by mail, nothing will prevent you from dropping off the forms at the post office without your signature. Make sure it’s there.
Keep this in mind
The tax system isn’t perfect, but it’s still a good idea to understand the basics.
Getting a large refund after you file your taxes is not necessarily a good thing; this is your money that you could have had use of throughout last year. Some people like the idea of the “forced savings” a refund provides, but it’s not hard to force yourself to save without giving the government an interest-free loan of your money. Then again, you might not have earned much interest on that money if it was just sitting in the bank.
Don’t be scared of earning more money because you feel you’ll move to a higher tax bracket. A higher tax bracket only affects the amount of income you earn above the limit of the previous tax bracket. In other words, you won’t owe 28% of all your income if you earn $1 above the limit of the 25% tax bracket, you’ll only earn 28% on that $1.
Likewise, for most people, as most of us are not fund managers whose income is for some reason classified differently, income called a “bonus” is not taxed differently than income called a “salary.” You have had more taxes withheld at the time you receive the bonus, but it all evens out in the end after you file your tax return.
The marriage penalty is a myth. In fact, the financial benefits to marriage (and filing as married-filing-jointly) often outweigh any negative effects. For more explanation, take a look at this great article by Liz Weston.
Good luck with your tax filing this year. Whether you owe or are due a refund, I hope the result matches with your expectations.
Updated April 20, 2017 and originally published April 12, 2011.
{ 13 comments… read them below or add one }
Hi Flexo,
Can you talk a little more about the The American Opportunity Credit? I was a full time student until May 2009 but I’m not sure if I qualify for it.
Thanks.
Eric
I’ll be happy to oblige. I’ll write something for Monday.
there is a fuel efficient car tax credit? I didn’t know that.
I wonder how many people don’t know you can ask for an extension, and instead just file late and pay the penalty? I don’t think you can bring this point up too many times — you’re always going to find someone who says, “Really? How do I do that?”
Would being a student in 2009 somehow affect this year’s taxes? I finished in December 2009. I’ll watch for your post, Flexo. Thanks.
Hi Donna! If you paid tuition (or some tuition-related expenses) in 2010 for your classes in 2009, and you haven’t claimed those expenses on your 2009 tax return (which you probably shouldn’t have, if you paid them in 2010), you can claim them now on your 2010 tax return.
I didn’t get the booklet, and I missed the self-employed tax break this year where you can deduct your health insurance premium before calculating your social security tax…that’s big. It may be for this year only if it is not extended. I know you can file amended returns…..all in all the tax code is too complicated. I know people who are accountants who have made mistakes.
Does anyone know what “qualified college expenses” are? I’m guessing it’s just books, fees and tuition, but it seems like monies paid toward student’s living expenses like rent, food and gas, should also be allowable.
From IRS Publication 970:
Expenses That Do Not Qualify
Qualified education expenses do not include amounts paid for:
Insurance,
Medical expenses (including student health fees),
Room and board,
Transportation, or
Similar personal, living, or family expenses.
If you find yourself getting into the weeds… hire a pro!
I got all my tuition credits and got a fatty $7k tax return back. I was smiling for weeks. If you paid cash for tuition (like I did), these tuition credits are crucial to getting a nice portion of your taxes back.
my only tip would be…try to avoid waiting to the last minute.
Good article. I didn’t even wait until the last minute last year, and STILL made a mistake with the Making Work Pay tax credit. Luckily the IRS refunded me the money I had to pay out by missing that. This year, I did it all online through Turbo Tax (a free edition) and it worked perfectly! I got my refund within only a few days after submitting it.
i need to file an 2011 amended tax return. to take the adoption tax credit. is their a deadline ? and or does filing for an extension apply here. iam thinking that would only apply if i owed the irs money. i need clairification. and where and how to do so. i alsready have the amended forms yet to be completed. lastly can i do the paperwork myself and then mail in with all required decrees etc. olr should i have a professional finish this, initial filing was done by a private person that went through h& r block.. thank you teri