Tax Season is Coming – Prepare for Preparation
It is almost that time again – tax season! Unlike deer season or snook season, we don’t have a tasty reward to look forward to after meeting all the requirements, but we may have a hefty refund coming! Just like hurricane season, preparation is the key to surviving and thriving.
As you gather your information and forms for tax preparation, keep some handy tips in mind:
- Take advantage of free tax preparation services if you qualify. While some of those tax prep software programs are easy to use and intuitive, not everyone is comfortable using them. For those who feel more secure with a live tax preparer, look to your local VITA Tax Program first. VITA, or Volunteer Income Tax Assistance, is a program found across the country. Trained tax preparers complete returns for people with less than a base income level, usually around $55,000 annually. Due to the ongoing pandemic, some of these VITA programs have moved to a virtual platform. This has increased access for some who did not have a VITA program in their area.
- Be Prepared with the Proper Documents. Whether you or someone else is preparing your tax return, you will need certain forms. Wage earners should receive a W-2 form from their employer. Contracted workers should receive a 1099 form. Other forms to gather will show interest paid, interest earned, tuition paid, charitable donation amounts, capital gains and more. Have social security numbers or other proof-of-residency documents for all filers and dependents at hand. Plus, keep in mind that some tax credits require dependents have a social security number and not just eligible residency in the US. These are situations where it is handy to have a trained, live tax preparer to help you file.
- Avoid Refund Loan Programs. Many tax preparation services offer an instant refund type program. It might seem like a good idea at first, but take a closer look. They are really offering you a loan for the refund amount they estimated you are eligible to receive. If you are not having a financial emergency and can wait the 10-14 days it usually takes to process your return, do it. Otherwise, you are paying a big fee for your own money. You will already be paying for the tax preparation service, do you really want to give this company any more of your money? You’ve waited all year for this, what difference does another ten days make?
- Consider Using Your Refund to Build Your Financial Foundation. For those who qualify for a tax refund, receiving that lump sum of money can be life changing. Make smart choices! Some people use that money to pay down debt – a smart move. Some people use it to fund a project, big purchase, or an annual vacation which is not a bad idea. Still others use the money to start an emergency fund for the year – another good idea. Did you know you can do more than one thing with the money? To avoid temptation, the IRS has a form that instructs them to split your refund into more than one direct deposit. You might opt to have enough for your intended purchase or project deposited in your checking account. The rest of the refund can be automatically deposited into your savings account for safe keeping.
- Take Advantage of the EITC. Many filers qualify for the Earned Income Tax Credit based on their income and tax filing status. However many people miss this credit because they aren’t required to file a return. New rules for the 2020 tax filing season help people who experienced a job loss or change in income. According to the IRS, “the earned income tax credit can give qualifying workers with low-to-moderate income a substantial financial boost. In 2019, the average amount of this credit was $2,476. It not only reduces the amount of tax someone owes but may give them a refund even if they don’t owe any taxes or aren’t required to file a return. People must meet certain requirements and file a federal tax return in order to receive this credit.” You can use this link to find out if you qualify for the EITC: EITC Assistant.
Bottom line is – be prepared to have your taxes prepared if you aren’t prepared to prepare them yourself. It helps to know your options for filing, the credits you may qualify for and what you intend to do with any refund you are owed. Having your ducks in a row for tax season helps you move easily through that and all the other natural and unnatural seasons we encounter in Florida.