Putting together an income tax plan does more than help you make it through tax season in one piece. It can also help you avoid some of the most common tax return errors. According to the IRS, the most common mistakes on returns range from writing down the wrong name to making a math mistake. And, those mistakes don’t even include the big ones, such as leaving out a source of income or forgetting to deduct an expense. This year, save time and possibly money by putting together an income tax plan before you start.
Gather Up Income Paperwork
Step one of your tax plan is to gather up any paperwork relating to your income. If you have one job and one source of income, this is relatively easy, as you only need to wait for a W-2 from your employer. If you have multiple jobs, are self-employed, or are married, things can get a bit more complicated as you’ll need to wait for documentation from each source. If you’re self-employed, that can mean waiting for 1099s from each of the companies who paid you, at least, $600 over the year. Even if a company paid you less than $600, you’ll need to report it, so go back over your records and make sure you’re reporting every penny earned.
List Any Adjustments
Next comes the fun part, figuring out what you can use to adjust your income and potentially lower your tax bill. At the start of the year, a number of companies, from your student loan issuer to your retirement plan, will send you tax documents. Make a list of the adjustments you can claim when planning for your tax return. Eligible adjustments include amounts you’ve contributed to a traditional IRA, self-employed pension plan, or other self-employed retirement plans, student loan interest paid, some moving expenses, educator expenses, and your self-employed health insurance premiums, among others.
Don’t Forget Deductions
Depending on your circumstances, you might be able to itemize your deductions instead of taking the standard deduction. Really, anyone can itemize, but it’s only worth the effort if your list of itemized deductions adds up to more than the standard deduction. If you paid mortgage interest, have high medical bills, made a lot of charitable contributions or have un-reimbursed employee expenses, make a list of them and add up their value. You might be better off itemizing, rather than claiming the standard deduction (which is $6,300 for single people and $12,600 for married, joint filers in 2015).
Claim Your Credits
Don’t forget that you might be eligible for some tax credits. If you paid for post-secondary education for yourself, a spouse or a child, you might be able to claim a credit based on the amount you paid. The same is true if you adopted a child or paid for child care. If your income is less than a certain amount, you might also be able to claim a small credit for contributing to your retirement, in addition to the amount you deducted.
Remember that documentation is key when claiming any deductions or credits and proving your income. Keep copies of everything, from receipts to forms you receive. While the IRS doesn’t expect you to hand in your receipts when you file, it will want to see them if you get audited. Having a well laid out plan and the documents to prove it will keep you from paying more than you owe to the IRS.
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Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve.
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