By Sarah C
Now that 2013 is here, it’s time to think about taxes. Whether you’re getting a refund or not, it’s a good idea to file your return early. In recent years, there has been a sharp increase in the number of fraudulent returns filed by identity thieves. They file tax returns, obtain your refund, and disappear before you (and the IRS) realize someone has already filed a return in your name. And, even without the concern of identity theft, if you’re getting a big refund, you want that money as soon as possible! Here’s a quick guide to getting your taxes done early.
First, gather key documents. You need three types:
2. Income documents -W-2s, 1099s (from investments, bank accounts, or social security money received), and any other record of income.
3. Expense documents – receipts for any expenses that might be tax deductible. This includes student loan interest, certain child care expenses, mortgage payments, property taxes, qualifying health care expenses*, and charitable contributions. Your records could be documents sent from the government (for student loan expenses) or cancelled checks, receipts, or other records of payment. Some of these deductions will probably only apply if you itemize deductions, but you should gather everything just in case. You will also need records of any contributions to retirement accounts, which can reduce your tax burden.
Second, figure out how you’ll prepare your taxes. If you’re comfortable doing it yourself with an online program, go for it! H&R Block offers free filing if your Adjusted Gross Income (AGI) was less that $57,000 and you are younger than 52. See their website for info. The IRS also trains volunteers who will prepare your taxes for free if your AGI is under $51,000. Search www.irs.gov for “VITA” (tax volunteer program) or call 800-906-9887 for a VITA location near you.
Third, if you are getting a refund, make a plan for the money! More than 80% of filers get a refund. Some tax preparers will offer you an “immediate” tax refund, but these carry a very high interest rate, so beware. The IRS processes refunds quickly and deposits the money directly into your account, so it’s better to wait the 5-7 days for the full amount than take the quick money.
If you are due a refund, it means more money has been withheld from your paycheck than was necessary, and you’re getting it back at tax time. You may want to change your W-4 withholdings so you get that money throughout the year, rather than as a refund. However, some people count on this big check to pay down debt, save for emergencies, or otherwise invest. Identify how you’ll spend the money before it arrives, so it’s used for a purpose and doesn’t just flow through your fingers. Then, make that money work for you!