Here's a look at the laws that could wage a multipronged attack on your wallet and what you can do to prepare.
Just thinking about preparing your taxes can give you a headache. It’s not only the concern over how much of your hard-earned money goes to taxes, but the stress over the actual filing process that gets to most of us. However, if you are prepared going into tax season, you’ll make it easier on yourself and get your tax refund sooner.
Here are eight basic tips to help every tax filer, along with some specific tips for military servicemembers and their families.
1. Don’t procrastinate. Resist the temptation to put off dealing with your taxes until the very last minute. If you wait to file until nearer the deadline, you may be so rushed that you miss a potential deduction or source of tax savings, and you increase your risk of making an error. Plus, if you file early, you’ll receive your refund sooner.
If you owe the IRS any money, the worst thing you can do is to file a late return. By filing late, you’re subject to late filing penalties that can run up to 25% of your taxes owed. If you’re not ready to file by the April 15th deadline, simply file IRS Form 4868 for an extension. That gives you six months to file your return. Keep in mind that you still have to pay anything you owe by April 15th, to avoid late-pay penalties.
3. File for Free. Everyone has the option to prepare their tax return and e-file it for free. If you made $57,000 or less in 2012, you can use free tax software offered by the IRS. If you made more than $57,000 and are able to prepare your own return, you can use Free File Fillable Forms, the electronic versions of IRS paper forms. Visit www.irs.gov/freefile for options.
4. Don’t panic if you can’t pay what you owe. You can easily set up a payment plan on taxes you owe, as long as your returns are filed up-to-date. For most tax debts, a payment plan, called an IRS Installment Agreement, can be set up online. With an installment agreement, you can spread your payments out over a number of years.
5. Deal with Back Taxes. It is easy to let a tax problem snowball. However, ignoring the problem and hoping that it will go away only increases the amount you owe and the chances that you’ll be subject to aggressive IRS collections. In addition to Installment Agreements, the IRS has a tax forgiveness program called Offer in Compromise. If you can meet the IRS standard for financial hardship based on your income, living expenses, and the assets you own, then you can potentially eliminate a significant portion of your tax debt.
6. Claim Your Deductions!You owe it to yourself to claim every tax deduction to which you’re entitled. There are many deductions and beneficial tax rules that are available exclusively to military servicemembers, including:
7. Know Your Exclusions. Some military pay and allowances can be excluded from your gross income. These exclusions generally include: living allowances, moving allowances, travel allowances, combat zone pay, and death allowances. Excluded items are not subject to tax, but may have to be shown on your tax return.
8. Seek Assistance. Many military installations offer free tax filing and preparation assistance, especially during tax filing season (begins January 30th this year). Contact your local base information officer to see if your post has an IRS Voluntary Income Tax Assistance (VITA) office. If you have a complicated return or are unable to file your own, it can be a worthwhile investment to hire a professional tax preparer that specializes in military returns to ensure that you get credit for every eligible deduction and exclusion.
2. File an Extension.
Ethan Ewing is a veteran consumer financial services and online marketing executive. He manages all aspects of Bills.com, a leading consumer finance website that provides practical financial advice and free financial tools and resources. Ethan is a driving force behind Bills.com’s growth. He has held leadership positions at two Experian companies and built a lead generation business for Ameriquest Mortgage. He holds a BA from Denison University.
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