6 Tax Return Secrets From Accountants
There are a few things you should know before you start to file with the IRS this year.
Even though it's something you do every year, filing your tax return isn't a process many people get too familiar with over time. Besides deciding which software or service is best for your needs, life events and new income streams can change your information from year to year and complicate the process. But while every person's financial situation is different, it can certainly pay to have some expert advice before filling out the forms. Read on for tax return secrets from accountants that could come in handy.
Things can change after filing for divorce.
Most people know that getting married can change the way you prepare your taxes if you and your significant other choose to file jointly. Things will also change if you have children since you can claim them as dependents. But if you've decided to divorce or change your family arrangement, experts say one little-known rule could potentially create some complications.
"I've seen many newly divorced clients claim their child as a dependent on their tax return at the same time as their ex-spouse and have their return rejected by the IRS," says Varsha Subramanian, a certified public accountant (CPA) with FlyFin.tax.
"Not everyone knows that the agency only allows the parent who had their kid living with them the most during the year to claim them as a dependent," explains Subramanian. "And if custody is 50/50, the parents have to alternate years when they claim child-related tax credits."
You may not always get a refund.
It's not uncommon to see some money come back in the form of a refund after filing your taxes. However, some experts warn that expecting you'll always be owed funds can be dangerous.
"Taxpayers should not assume that because they received a refund in one year they will have a refund in the next," Robbin E. Caruso, CPA and partner at Prager Metis, tells Best Life. "They should carefully project their tax liability every year and make any payments due through tax withholding, and with their estimated taxes, tax returns, or tax extensions in order to avoid costly penalties and interest on them."
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How you file your taxes can have a significant impact.
Anyone who has researched potential ways to file their taxes knows there's no shortage of options. From pared-back free services to souped-up premium software, most taxpayers can find what they need while staying within their budget. But if you're looking to avoid any mishaps or lags, there's one way you should always submit your taxes.
"Always choose to e-file if possible," says Moira Corcoran, CPA and finance expert with JustAnswer. "The IRS is still behind on paper returns from COVID, and it is taking up to two years to process. If you would like your refund ASAP, e-filing is the way to go!"
This same advice also applies to payments coming back to or from the government. "A paper check can easily get lost in the mail, but an electronic deposit—and a tax payment—is reliable and trackable," says Subramanian. "In short, always choose the electronic option when it comes to money and taxes."
Get a head start on organizing your finances.
Tax preparation can be stressful enough without having to hunt down paperwork or look up information on a tight deadline. That's why the process of organizing everything for your subsequent filing should start as soon as the calendar changes over.
"Make a habit of retaining all tax-related documents during the year," suggests Caruso. "For example, if you make a charitable contribution, save a copy of the payment made—such as a check or credit card statement—and of the contemporaneous confirmation letter that supports the donation."
"Other examples of documents to save include receipts for deductible business expenses, information regarding all cryptocurrency and foreign transactions, payments for childcare costs, real estate taxes, and documents related to the sale of capital assets like stock or real property like a home, inheritances, and gifts," Caruso says.
"I also recommend making a checklist of all the items you needed to prepare this year's tax return and using it as a general guide for next year," she adds.
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Hire the right kind of professional to help you file.
For some people, hiring an outside professional can be one of the best options to help ensure their taxes get done correctly. But similar to picking the right DIY software, it's also vital to ensure you're going with the right accountant for your specific needs.
"Suppose the CPA helping you prepare your tax return is familiar with your work. In that case, they're far more likely to have detailed information about deductions and tax breaks that other CPAs won't know, which can significantly lower your tax bill," says Subramanian.
And it's also essential to remember that when you ask them to take you on as a client matters, too. "If you plan on working with a tax preparer, please make sure you reach out with enough time! CPAs are busy, and their schedules fill up quickly," warns Corcoran.
Don't be too eager to submit your filing.
Some people may opt to file their taxes well before the April deadline, whether it's because they have a busy schedule or simply like to get things off of their to-do list. However, this is one situation where being a little too early might actually wind up costing you in the end.
"Never file as soon as the tax season opens," says Corcoran. "The IRS might be pending on a new ruling, or you might receive a tax reporting document late. It's best to wait at least a few weeks into tax season to file."
Best Life offers the most up-to-date financial information from top experts and the latest news and research, but our content is not meant to be a substitute for professional guidance. When it comes to the money you're spending, saving, or investing, always consult your financial advisor directly.