April 15 is quickly approaching, which means the window to file your taxes on time is quickly closing.
If this sudden realization has instantly sent you into a panic: calm down. You still have time to get everything in, and you'll do it for less if you follow these simple steps:
1. File taxes on time.
This one probably seems like it could easily go in the "well, duh" category, but this is a great way to save money right off the bat. According to the IRS, filing late can result in fees of 5-25% of your unpaid balance, with an added penalty of 0.5% for every month it goes unpaid. Why even worry about it? File and pay on time, and skip the headache. If you aren't going to make the deadline, apply for an extension with Form 4868.
2. File online
Filing taxes can be a giant headache, because there are so many forms to fill out and numbers to consider. One oversight can result in the taxes not being accepted, further drawing out an already long and boring process. Plus, you also leave yourself open to late fees and penalties. Filing online allows you to make sure that you have everything the IRS requires to make paying taxes as painless as it can be.
3. Give to charity.
Donating to legitimate charities is a great way to get a deduction for your taxes and help out a worthy cause at the same time. Donations larger than $250 require documentation from the charity itself, so be sure to file that too.
Need help finding a cause that will make good use of the funds? Head over to Charity Navigator to locate an organization that aligns with your personal passions.
4. Earned Income Tax Credit.
If your annual income is less than $50,000 per year, you may qualify for the Earned Income Tax Credit. The amount varies, but some individuals can earn over $6,000 toward reducing their payments or even causing them to get a refund. Head over to the IRS website and take their quiz to see if you qualify.
5. Go green.
If you need more motivation to make eco-friendly improvements to your home beyond, you know, saving the planet, then maybe a tax credit is a little more your speed. Investing in energy efficient appliances, insulation, roofs, and windows can help you get a credit of 10% of those costs (up to $500). Bigger projects, such as installing solar panels or wind turbines can result in a tax credit of 30% with no upper limit.
6. Itemize medical supplies.
Whether you battle chronic illness or only have a small health issue once in a while, there's a good chance you'll be able to write off some of those expenses. Crutches, lodging while traveling for treatment, dental work, and rehab are only some of the extensive list that can be claimed. Check out Publication 502 from the IRS to see the full list of what can and can't be deducted from your taxes.
Be sure to save receipts!
7. Claim your home office.
If you work from home even part of the time, it is probably worth trying to write off expenses from your home office. Some things to be considered are partial mortgage payments (depending on the size of the office within the home), energy bills, internet, phone bills, and business-based computers.
8. Claim mortgage interest.
If you're paying interest on your mortgage or home equity loan for your first or second house, you need to look into deducting it from your taxes. The amount is not limited, provided the mortgage is lower than $1 million for a married couple filing jointly. IRS Publication 936 has all of the details on this one.
9. Start your own business.
This tip isn't exactly for everyone, but if you have a hobby that you use to make a little money on the side, it might be worth looking into. Owning your own business provides the freedom to write off more expenses related to that business and it also provides a little wiggle room with how money can be doled out as income. However, top-notch paperwork skills are needed to make sure everything is done legally.
10. Claim your children…
Don't underestimate the amount of things that can be written off because of your kids. Those in lower tax brackets can get an exemption for each child up until they are 24 years old, provided they are a full-time student and you're supporting them. Things like daycare expenses can also be recouped. Social security numbers need to be provided for each dependent and each individual can only be claimed once. If you are divorced, the IRS will not allow both you and your ex to claim the kid(s).
11. …and then start college accounts for them.
College tuition probably isn't going to decrease in price anytime soon, so start saving ASAP and don't set yourself up for big tax hits in the future. A 529 Savings Plan uses post-tax dollars that can go into an account and build interest until the child is ready to go to college. There aren't any additional taxes on this money, as long as it is being used to pay for college expenses like tuition, books, and housing.
12. Plan for retirement.
Contributing money to accounts like IRAs or 401(k)s takes funds directly from your paycheck and puts it into a retirement investment account, and some of those accounts qualify as deductions.
Considering the average lifespan is increasing anyway, you'll need to make sure you have enough money to last you throughout your nice, long retirement. You can even talk to your employer and find out what contribution they will make toward your retirement as well and get additional benefits.
[H/T: US News & World Report]