Tax-filing guide: 4 tips for filing your taxes

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Whether you’re new to filing your taxes or need a refresher, these tips can help you better prepare and file your taxes more confidently.

1. Gather all of your tax documents

To start, organize your tax documents as they arrive. You will receive most of your tax forms in January, such as your W-2, Form 1098 (if you’re a homeowner paying mortgage interest) and any version of Form 1099 to report income other than wages, such as self-employment earnings or unemployment compensation. You may also receive a Form 8960 if you earned an investment income. Put these documents in a folder marked for the 2020 tax year as soon as you get them so that they’re easily accessible when you start filing.

If you plan to claim tax deductions to get into a lower tax bracket, it’s important to have the necessary documents handy for proper verification. Gather documents like Form 1098 if you paid mortgage interest, receipts from charities you donated to, documents for out-of-pocket health care expenses and other documents to help you lower your tax liability.

2. Determine whether to claim an adult child as a dependent

The IRS allows for parents to claim their child as a dependent until age 19 or until 24 if the child attends college and is 24 years or younger at the end of the calendar year.

If, however, the child is permanently and totally disabled, then there’s no age limit to claim them as a dependent.

3. Choose how to file your taxes

Tax prep services such as H&R Block and TurboTax offer software and tutorials online to help you file your taxes. Simply sign up for an account, choose the product you want, then file your taxes online.

Many of these services will check the information you entered to ensure there are no errors. Some will even assist you in filing local and state taxes if they are applicable in your area. Once completed, the service will file your return to the IRS, which will either accept or deny your return based on the information you provide.

While many software companies charge for their services, there are ways to file your taxes for free. One option is the IRS Free File Program. If your annual income is $72,000 or less, you can file online through partnerships the IRS has with tax preparation companies. If your annual income is more than $72,000, you can use the IRS’s Free File Fillable Forms option and fill out your federal forms and file yourself. This option is available starting around mid-January and closes by mid-October.

Your local library provides printed tax forms if you prefer the pen and paper approach. Instruction booklets are available for downloading on the IRS website.

You can also use a local tax preparation service. Simply bring your tax forms to the office, and a tax preparer will file them for you. This service will cost you, but it can be a stress-free way to file your taxes.

If you’re concerned about cost, consider the IRS’s Volunteer Income Tax Assistance (VITA) program. To qualify, filers must earn $57,000 or less in annual income or meet other IRS requirements to qualify. Taxpayers age 60 or older can use the IRS Tax Counseling for the Elderly (TCE) program, which specializes in answering questions about pensions and retirement-related issues specific to seniors. Due to COVID-19 restrictions, several VITA sites and all TCE locations are closed. To find an open VITA location that’s close to you, visit the IRS VITA Locator Tool.

4. Prepare if you owe money or will receive a refund

By the time you get to line 19 on your 1040, you’ll know whether you will owe money to the IRS or receive a refund.

What if I owe taxes?

The IRS will send you a statement in the mail with how much you owe and when to pay. If you file with tax-filing software, you’ll have the option to pay online after filing.

If you can’t pay the full balance by the due date, you have options to consider.

  • Offer in compromise: With Form 656, you can propose to make one payment to pay off your tax debt that suits the best interest of both you and IRS. To determine eligibility, you must fill out an application with the IRS and provide documentation showing that you can’t repay the full debt in a reasonable time frame. The fee for the applications is $205.
  • Set up an installment plan with the IRS: With an installment plan, you agree to pay a specific amount each month. There is a fee to set up this plan that varies from $31 for automatic withdrawals to $149 for plans with no automatic payments. Once that’s squared away, you can make your monthly payments until you pay the debt in full.
  • Request a short-term extension: With a short-term extension, the IRS gives you 120 days to pay your balance in full. If you don’t pay within this extension, your back taxes will incur penalties and interest, which will grow the longer it remains unpaid.

The IRS recommends that you still file your taxes even if you can’t pay the amount owed. You can also call the IRS at (800) 829-1040 to discuss payment options.

“The agency may be able to provide some relief such as a short-term extension to pay, an installment agreement or an offer in compromise, or by temporarily delaying collection by reporting your account as currently not collectible until you are able to pay,” according to the IRS website.

State and local tax agencies handle repayments differently. Call your state or city tax office to discuss repayment plans or go online for more options.

What to do if you receive a refund

If you receive a tax refund, you can either have the funds deposited directly into your bank account or have a paper check mailed to you.

Receiving your tax refund via direct deposit to your bank account is faster than receiving a paper check in the mail, even faster if you file your tax return online. According to the IRS, it issues more than 9 out of 10 refunds in 21 days or less to those who combine direct deposit with electronic filing. Double-check that your banking information is correct to prevent any delays in processing your refund.

Written by
Sean Jackson
Contributing writer
Sean Jackson is a contributing writer at Bankrate. Sean writes about budgeting, saving money and more.