3 Tips To Keep In Mind When Filing Your Taxes | ModMoney

3 Things to Keep in Mind When Filing Your Taxes

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You know, it's really unfair. We get to spend December frolicking in the cool air, surrounded by the lights and frivolity of the holidays. We even keep our homes lit until January, holding on to this bliss until the last minute. Then, the gaiety ends. And the worst part? It's replaced with tax season. But honestly, filing taxes doesn't have to be a dreadful chore if you use the right resources. Plus, there are a few things you can do today to lower your tax bill or increase your refund. Here are some tips that will make filing your taxes a smooth process this year.

1. Consider filing electronically with TurboTax.

I've talked before about how technology makes it easy to invest. Well, the same goes for taxes. Software platforms like TurboTax make it fast, easy, and cheap to file. I have used TurboTax for the last four years and can honestly say it's a game changer.

I use TurboTax for three reasons. First, it makes filing quick, easy, and inexpensive. Second, TurboTax searches the nooks and crannies of the tax code to ensure that I receive every tax break I deserve. Third, TurboTax is like a crash course in taxes—except actually engaging and interesting! My taxes used to feel like a daunting black box that I would never understand. Should I choose the standard or itemized deduction? How will my donations to charity impact my returns? How about my student loan interest payments? What's the difference between a deduction and a credit? TurboTax answers all of these questions in a simple, user-friendly way. The software walks through each step and teaches you exactly how your taxes work. If anything, it's a great learning exercise.

I encourage you to check out the TurboTax platform and user interface this year. I think you'll be impressed at its simplicity and appeal. While I'm partial to TurboTax because it has worked so well for me, other electronic filing options include H&R Block and TaxAct.

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2. Finish contributing to your tax deductible accounts.

There's a good chance you have a tax-advantaged account like an IRA. Contributing to this can cut your tax bill or increase your refund because you don't have to pay income tax on the money you put in. Even though we're already in the new year, you can retroactively contribute to your IRA (up to $5,500) before the April 18 deadline and still receive the 2016 benefit. Unfortunately, the deadline for your employer-sponsored 401(k) is still December 31. Sidenote: Tax filing deadlines are usually April 15. Because the 15th is a Saturday this year and Monday the 17th is Emancipation Day, the deadline falls to the 18th.

Some of you may also have a Health Savings Account (HSA) if you have a high-deductible health plan with your employer. If so, you can contribute up to $3,350 ($6,750 for families) before April 18 and receive tax benefits. An HSA is a special kind of medical savings account that is even more tax-efficient than an IRA or a 401(k). The money you put in is pre-tax, it grows tax free, and it comes out tax free, as long as you use it for medical expenses. With an IRA or 401(k), you still have to pay taxes when you withdraw the funds in retirement.

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3. Don't wait until the last minute.

This might seem like a no-brainer, but you may not realize all of the benefits to filing early:

  1. Lower the risk of identity theft. Tax season is prime time for identity thieves to submit falsified tax documents with your social security number and claim your refund. This a pain to deal with and can take up to a year to resolve with the IRS.
  2. You may run into unexpected complexity, especially if you lived in multiple states, switched jobs, got married, started a family, etc. If you have to track down additional documents, starting early is helpful.
  3. If you file early and are owed a refund, you'll receive your cash sooner and can let compound interest work for you right away.
  4. If you owe taxes this year, you'll want to have time to collect the cash and pay timely. Otherwise, you'll owe interest and penalties. And nobody wants to pay the IRS more than they have to.

The Bottom Line

Filing taxes shouldn't be a chore that we dread year after year. Software platforms like TurboTax make it easy and cheap to file quickly and accurately. Plus, they actually teach us about our taxes and ensure we receive the deductions and credits we deserve. But don't procrastinate! Get started today, and I promise you'll be pleasantly surprised. You may even become a nerd like me and look forward to it every year. Did I just admit that?

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