Monday, March 31, 2008

Tax Season Do’s & Don’ts

Do - File Something
You must file a return with the IRS before April 15. If you do not then you will face penalties and fees that will eventually catch up with you. Even if for some reason you cannot file a return, at least file for an extension using IRS Form 4868. If you are likely to owe the IRS money, also consider sending in a payment to avoid additional fees.

To become eligible for benefits under the economic stimulus package, you need to file a return this tax season – even if you do not normally file a return. The IRS is going to determine the names and addresses of those eligible for a stimulus check based off this year’s tax returns. Therefore, if you do not file a return you will not get up to $600 in payments.

Don't – Omit Any Income
One of the biggest mistakes taxpayers make when preparing their returns is to omit part of their income. Remember that the IRS requires you to report all income including wages, business profits, interest, dividends, capital gains, pensions, tips, and even gambling winnings.

Do – Seek Help
If your taxes are too confusing or you simply have a question about your return, then do not be afraid to ask for help. There are accountants and tax preparation offices all over the country to prepare your return for you. Most will answer simple questions for you over the telephone.

Don’t – Get Audited
Technically you are always at risk for an audit since there is a random element in the IRS’ audit selection process. However, below are five red flags you can avoid to decrease you chances of getting an audit.

1. Drastic changes in income
2. Too many charitable contributions
3. Excessive amount of credits taken
4. Inconsistencies between previous returns
5. Reporting a suspiciously low income

Do – E-file
If you are going to file your return yourself then you should e-file. Studies show that people who e-file make fewer errors. You will also have confirmation from the IRS within a few days of receipt of the return. Additionally, if you chose to have your refund direct deposited, then you will receive it in as little as 10 days.

Don’t – Throw Away Documents
Just because you have sent your return to IRS does not mean it is ok to throw away your important forms, records, and receipts. If you are ever audited you will need all of these documents. Please make sure to store them in a safe place.

Do – Save Your Refund
Although most taxpayers look at a refund from the IRS as “free money,” the smartest thing you can do with your refund is use if to pay off high interest debts. The average household has nearly $10,000 in just credit card debt and most Americans either have a home mortgage or an automobile loan. Instead of wasting your refund on something useless why not pay extra on one of these lines of credit?