March 20, 2007 > Don't wait until the last minute to get taxes in order
Don't wait until the last minute to get taxes in order
By Jason Alderman
When it comes to filing taxes, some of us are ants and some are grasshoppers. Ants methodically file receipts all year in color-coded folders and on January 2 they calculate their refund; grasshoppers shove everything into a shoebox and pull it out, panic-stricken, the night before the tax-filing deadline.
In case you harbor grasshopper-like tendencies, here are a few suggestions to avoid last-minute chaos:
April 17 deadline. Your tax return should be postmarked or filed electronically no later than that or you risk penalties. It's also the deadline for making 2006 IRA contributions, filing for a six-month extension and paying the first installment of your 2007 estimated taxes, if applicable.
Get your ducks in a row. Whether you calculate your own taxes or hire someone else to, you're still responsible for pulling together all relevant information. Tax completion software packages like TurboTax (www.turbotax.com) and TaxCut (www.taxcut.com) can help you organize your records, as can guidebooks like "The Ernst & Young Tax Guide." Yahoo's online Tax Preparation Center also provides a free checklist at http://finance.yahoo.com/taxes/checklist.
While you're at it, think like an ant and store your 2007 receipts in the same categories to make it easier next year. Visa USA's free personal finance site, Practical Money Skills for Life, features a downloadable tool, My Budget Planner, that can help you categorize and track your income and expenses (www.practicalmoneyskills.com/mybudget).
People make more mistakes when rushed. Common tax-filing errors include:
Omitting or filling in incorrect/illegible taxpayer ID numbers, filing status, dependent names and Social Security numbers
Documentation not attached (W-2s, supplemental forms, etc.)
Omitting income items
Tax return not signed and dated
Information entered on the wrong lines
Child tax credit incorrectly calculated
Math errors. (Tax software does the math, but you're still responsible for entering correct numbers initially.)
Here are a few income-tax differences this year:
Congress extended several due-to-expire tax benefits, including deductions for state/local sales tax (in lieu of state/local income tax), higher-education tuition and fees, and un-reimbursed teacher classroom expenses. Because this legislation passed after 2006 tax forms were printed, the IRS will mail supplemental instructions (or go to www.irs.gov.)
The government stopped collecting federal excise tax on long-distance or bundled telephone service and most people will be eligible for a one-time refund. IRS 1040 forms contain instructions. Standard refund amounts of $30 to $60 are available for those who don't have their old phone bills handy.
All cash charitable contributions made after August 17, 2006, must be supported by a dated bank record or receipt from the charity. Also, after that date, donated used clothing and household items must be in good condition or better.
Standard deduction amounts for those who don't itemize have increased, as have standard mileage rates for business, charitable service, medical and moving-related car travel.
Taxpayers may now divide their federal tax refund among up to three different bank accounts - a good way to earmark part for savings.
The biggest tip I can offer is don't wait until the last minute. The sooner you know whether you'll get a refund or owe money, the sooner you can start planning your course of action. Think like an ant and enjoy the picnic.
Jason Alderman directs the Practical Money Skills for Life program for Visa USA. To sign up for a free monthly e-Newsletter featuring an array of personal financial tips and tools, go to http://www.practicalmoneyskills.com/english/at_school/teachers/newsletter/register.php.
As always, consult a financial professional regarding your particular situation.