TAX TIP No. 1
Earlier is better when it comes to working on your taxes, for you and the Internal Revenue Service. By getting a head start on tax preparation, you avoid the last-minute rush, when many filing mistakes are made. And the sooner the tax agency gets your return, the sooner it can process it and get your refund on its way to you.
Here are eight ways to get a jump on your taxes long before the April 15 deadline rolls around:
1. Check out Schedule M. This is the new tax document that you'll use to account for the Making Work Pay credit money you got last year in your paychecks. Thanks to revised payroll withholding tables used from April through December, most workers got an extra $400 each or up to $800 for married couples who file jointly. But in some cases, the amount might have been too much. To account for the early credit payouts and make sure they were correct, filers will have to complete the new Schedule M. Take a look at the form and do some rough calculations. That way you'll find out whether you're fine or whether you'll lose some of the credit when you file your tax return.
2. Get ready for the arrival of records. When your W-2s, investment statements and other tax-related documents start coming in, create a collection point and put them there. It could be as simple as a large envelope. You might have received a few documents in December, but most will arrive throughout January. Just make sure that whenever the material shows up you put it all together in an accessible place, so when you are ready to fill out your return you have all the data you need. Remember, the IRS gets a copy of most of these, too, so figures on those statements are critical to ensuring your return sails through the system.
3. Track down Social Security numbers. Before the IRS will process any return, the agency must have your correct Social Security number, as well as your spouse's, if you file jointly, and those of any dependents you claim. These numbers are crucial because so many transactions -- income statements, savings account interest, retirement plan contributions -- are keyed to them. The IRS also checks the identification numbers against any tax breaks you apply for, such as the Child Tax and Additional Child Tax credits, credits for educational expenses and the dependent care tax credit. So make sure everyone in your tax family has a valid Social Security number and that you have them written down correctly. It wouldn't hurt to put this information in that envelope where you're stashing your incoming tax statements.
In this tax tip
- Track down SSN.
- Find your forms.
- Don't panic!
4. Find your forms. Last year, two-thirds of all taxpayers filed their returns electronically, meaning all the forms were provided in the tax software. The rest who filed the old-fashioned way will get a tax packet in January, but it never hurts to have backup forms in case you make a mistake. Plus, your tax situation may have changed, meaning you need material other than what's in the IRS package, since it's based on your past filing history. A few of the most common forms are available at post offices and libraries. Most of the rest can be downloaded from the Internet. Check out Bankrate's tax forms library or the IRS' Forms and Publications Web page.