Many of us fill out our tax returns exactly the same way year after year, without stopping to ask ourselves whether our approach still makes sense. Here are five common tax habits that it may be time to reconsider.
1. Mailing your tax return
If you file your return by mail, it usually takes six to eight weeks to get your refund. Now, however, it's possible to file electronically and get your refund in only three weeks. To do this, you must use a tax preparer or transmitter accepted by IRS; you can find one by checking newspaper and TV advertisements. The service usually costs roughly $25 to $40. If your refund is under $500 it's probably not worth this fee to get your money four or five weeks sooner, but if your refund will be substantial and you need the money fast, check out his alternative.
2. Taking the standard deduction
The IRS gives you a choice of taking the standard deduction ($11,400 for a married couple or qualifying widow/widower, $8,350 for head of household and $5,700 for a single person or married filing separately) or else itemizing your deductions one by one. Clearly, it pays to take the standard deduction only if it's larger than your itemized total--and if your circumstances have changed in recent years, it may not be. For example, if you changed jobs, got a good raise or moved to another state, you may be paying a larger amount in state and local taxes, which are deductible. You may also have extra deductions if you suffered a major uninsured loss through theft or fire in the past year, or if you now own your home rather than rent. if any of these cases apply to you, try itemizing to see if you're entitled to a bigger deduction this year.
3. Using one of the "short forms"
You can pay your taxes with the standard Form 1040, or you can use one of the shorter, simpler tax forms (1040A, or 1040EZ if you are single). The short forms are a breeze compared to 1040, but you may save substantial sums by using the latter. Among other thins you can't itemize unless you use 1040, nor can you write off certain investment losses--for example, if you sold a stock for less than you paid for it. Moreover, you can't deduct contributions to a Keogh or SEP retirement plan unless you fill out the longer form. If you have started to acquire investments, have bought a home or have gone into business for yourself, 1040 makes the most sense.
4. Doing your return with a calculator
If you are computer-literate, this could be the year to invest in a tax-preparation software program. The good ones lead you step by step through tax forms, so that you are unlikely to miss any deductions, exemptions or tax credits to which you are entitled. In addition, you avoid the arithmetic mistakes that the IRS tells us are responsible for many of the errors on tax returns--and the delays in getting a refund. For ease of use, you may try TaxCut, TurboTax Premier and CompleteTax.
5. Assuming an IRA is not for you
Since 1986, if you or your husband works for employers who offer retirement plans (even if you don't participate in them) and you earn more than a certain amount, you can no longer deduct IRA (Individual Retirement Account) contributions on your tax return. Because these changes have been widely publicized, many young women no longer consider IRAs a good financial option. But the law provides important exceptions under which IRAs are still deductible for many people. If you meet the requirements, there are big financial advantages, so you should consider putting something into an IRA this year. Other rules govern those who file as head of household or as "married, filing separately,"; check with your bank for details.
1. Mailing your tax return
If you file your return by mail, it usually takes six to eight weeks to get your refund. Now, however, it's possible to file electronically and get your refund in only three weeks. To do this, you must use a tax preparer or transmitter accepted by IRS; you can find one by checking newspaper and TV advertisements. The service usually costs roughly $25 to $40. If your refund is under $500 it's probably not worth this fee to get your money four or five weeks sooner, but if your refund will be substantial and you need the money fast, check out his alternative.
2. Taking the standard deduction
The IRS gives you a choice of taking the standard deduction ($11,400 for a married couple or qualifying widow/widower, $8,350 for head of household and $5,700 for a single person or married filing separately) or else itemizing your deductions one by one. Clearly, it pays to take the standard deduction only if it's larger than your itemized total--and if your circumstances have changed in recent years, it may not be. For example, if you changed jobs, got a good raise or moved to another state, you may be paying a larger amount in state and local taxes, which are deductible. You may also have extra deductions if you suffered a major uninsured loss through theft or fire in the past year, or if you now own your home rather than rent. if any of these cases apply to you, try itemizing to see if you're entitled to a bigger deduction this year.
3. Using one of the "short forms"
You can pay your taxes with the standard Form 1040, or you can use one of the shorter, simpler tax forms (1040A, or 1040EZ if you are single). The short forms are a breeze compared to 1040, but you may save substantial sums by using the latter. Among other thins you can't itemize unless you use 1040, nor can you write off certain investment losses--for example, if you sold a stock for less than you paid for it. Moreover, you can't deduct contributions to a Keogh or SEP retirement plan unless you fill out the longer form. If you have started to acquire investments, have bought a home or have gone into business for yourself, 1040 makes the most sense.
4. Doing your return with a calculator
If you are computer-literate, this could be the year to invest in a tax-preparation software program. The good ones lead you step by step through tax forms, so that you are unlikely to miss any deductions, exemptions or tax credits to which you are entitled. In addition, you avoid the arithmetic mistakes that the IRS tells us are responsible for many of the errors on tax returns--and the delays in getting a refund. For ease of use, you may try TaxCut, TurboTax Premier and CompleteTax.
5. Assuming an IRA is not for you
Since 1986, if you or your husband works for employers who offer retirement plans (even if you don't participate in them) and you earn more than a certain amount, you can no longer deduct IRA (Individual Retirement Account) contributions on your tax return. Because these changes have been widely publicized, many young women no longer consider IRAs a good financial option. But the law provides important exceptions under which IRAs are still deductible for many people. If you meet the requirements, there are big financial advantages, so you should consider putting something into an IRA this year. Other rules govern those who file as head of household or as "married, filing separately,"; check with your bank for details.
