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 and it makes it easier for the agency to process your return and get any refund on its way to you sooner.
Here are seven ways to get a jump on your taxes long before the April 16 deadline rolls around April 15 this year is on Sunday, pushing the deadline to the next business day:
1. 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 our 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 is critical to ensure your return sails through the system.
2. 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.
3. Find your forms.Slightly more than half of all taxpayers filed their returns electronically last year, meaning all the forms were provided in the tax software. The other half 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’s Forms and Publications Web page.
4. Decide how you want to do your taxes.Gathering the appropriate tax forms goes hand-in-hand with how you plan to complete your return. Which preparation method fits your tax style? Are you a do-it-yourselfer or should you hire a pro? Do you prefer pen and paper or a computer? Now’s the time to decide. By starting early, you have plenty of time to gather filing paperwork yourself, pick the perfect tax preparer or find the tax preparation software that fits your needs.
5. Consider electronic filing.If you decide to use your computer to calculate your taxes, consider taking the next step and file the forms electronically. E-filed returns are processed in about half the time of paper ones, according to the IRS. Plus, e-filing catches math problems and provides confirmation your return has been received. You might even be able to e-file for free via the Free File Alliance, a joint venture of the tax software industry and the federal government. Under 2007 guidelines, taxpayers with adjusted gross income of $52,000 or less can e-file at no cost. The IRS will start accepting electronically filed returns on Jan. 12 and the Free File program is expected to be operational by Jan. 16.
6. Use direct deposit.Regardless of whether you file electronically or the old-fashioned paper way, this year have your refund check directly deposited into your bank account. And new this year, you can have your refund divided and sent directly to up to three separate accounts. Check with your financial institution now to ensure that the process will go smoothly. Then, when you file simply tell the IRS you want direct deposit by putting your account information on line 74 of your Form 1040 (line 45 if you file a 1040A; line 12 for 1040EZ filers). If you want to send the money to additioanl accounts, file Form 8888. Either way, you won’t have to worry about the check being lost in the mail or returned to the IRS because of a bad address. Even better, you’ll have access to your refund sooner.
7. Don’t panic.Tax filing makes everyone a little nervous, but when you start early, you’ve got time to get the answers and make sure you’re taking full advantage of every tax break for which you’re eligible. Check Bankrate Taxes throughout the filing season for more tips, stories and explanations of tax laws and how to make the most of them. If you have a specific question, ask our tax expert. You also can visit the IRS Web site or call its TeleTax service at 1-800-829-4477 to get recorded information on more than 140 tax topics.