Last-Minute Tax Hacks are a definite must now that tax season has begun. Check out our simple tax tips that hopefully help ease the pain of doing taxes.
Tax filing is a little like that growing pile of laundry—something to think about…tomorrow.
As a parent, you’ve probably told your kids to clean their rooms, oh, about a million times before they finally get to peeling the dirty clothes off the floor.
Well, with the tax-filing deadline a couple of weeks away, you can’t put off the inevitable any longer. Get cracking and follow these six DIY steps to file your taxes with ease before the clock strikes midnight on April 15.
LAST-MINUTE TAX HACK #1: Report All Your Income
Americans who earn a salary or wage through their employer file their taxes using Form W-2. But a W-2 doesn’t include the income from your side hustle as a blogger or the extra spending cash you earn selling Mary Kay. You need to report that income, too. Aside from a W-2, here are some other tax forms you may need to have at the ready:
Form 1099-MISC— Do you rent out your home on Airbnb? Or design websites in your spare time? If you earned more than $600 as an independent contractor, each client will send you a 1099-MISC stating the amount of money you made during the year. (Pro Tip: You must report any and all income you earn. That means even if you don’t receive a 1099-MISC, you must still report that extra $200 or $300 you pocketed after working for someone.)
Form 1099-INT— Did you make some money on a hot stock tip? The bank will send you a 1099-INT, which is a statement that shows the amount of interest you earned.
Form 1099-DIV/B— If you made income through capital gains or dividends, the bank will provide a 1099-DIV/B statement reporting those earnings.
There are separate tax forms for income earned through rental fees, unemployment and alimony/child support, etc. In addition, you should have receipts or statements for expenses like medical, education and childcare, which will help you determine how much to deduct if itemizing, speaking of which…
LAST-MINUTE TAX HACK #2: To Itemize or Not to Itemize
If you’re looking to make tax filing as quick and easy as possible, this is your lucky year! There’s never been a better time to take the standard deduction. With the passage of the Tax Cuts and Jobs Act of 2017, the standard deduction doubled for nearly every type of filer ($6,350 to $12,000 for Single, $12,700 to $24,000 for Married Filing Jointly and $9,350 to $18,000 for Head of Household). That means if your itemized deductions aren’t higher than that value, you can simply claim the standard deduction. Talk about a time saver!
What’s more, several deductions changed this year, making them less impactful for some filers. The deduction for state and local taxes, for example, is now capped at $10,000. If you live in a high taxing state, that may affect your motivation to itemize. When you file your taxes using TaxAct, the software will help you determine whether you’re better off itemizing or taking the standard deduction. In some instances, the former may be the way to go.
P.S. Deductions weren’t the only part of the tax law that were overhauled. A few credits got a makeover, too. For instance, the new law increased the Child Tax Credit to $2,000 per child, so keep that piece of good news in mind when you file. If you have a new bundle of joy on the way, that’s another reason to celebrate!
LAST-MINUTE TAX HACK #3: Choose Your Filing Status
This might seem like a no-brainer, but it’s a little more complicated than checking off a box for married or single. Your filing status will affect how much you pay in taxes.
Here’s what you need to know about the five filing statuses:
Single—You’re unmarried and don’t qualify for either Head of Household or Qualified Widow/Widower.
Head of Household—If you’re a single mom or dad who pays more than half the cost to maintain a home and care for your child (or parent or sibling), you can file as Head of Household. The Head of Household status lets you claim a bigger standard deduction (see step 2) than if you were to file as Single.
Married Filing Jointly—This is how most married couples file. In short, it allows you to file one return, reporting all combined income, deductions and exemptions. Beyond the ease of only having to file one Form 1040, choosing the Married Filing Jointly status also means you can claim a higher standard deduction and take advantage of credits that aren’t available for those who file separate from their spouse.
Married Filing Separately—Given what we learned about Married Filing Jointly, why would any couple choose to file separately? The biggest reason…large out-of-pocket medical expenses. The IRS only lets you deduct the amount that exceeds 7.5 percent of your adjusted gross income (in 2018), so if you have a lot of medical expenses, and a high combined income, it can be almost impossible to claim the bulk of those costs.
Qualifying Widow/Widower—The qualified part of the widow/widower status is what might throw you. Under IRS rules, you can only claim widow/widower for two years after your spouse’s death. So, if your spouse passed away in 2018, you could use Married Filing Jointly this tax season and widow/widower for the following two years. By filing as a widow/widower, you’ll likely pay less in taxes than if you filed as Single.
LAST-MINUTE TAX HACK #4: Have No Fear
Online tax programs like TaxAct are easy to follow and much less work—believe it or not—than handing your paperwork off to someone else and potentially having to correct their mistakes. The product will tell you exactly what to do. Sit back, relax and just answer the questions. If you are confused, ask—search the help topics in the Answer Center throughout the process. TaxAct also offers phone and email support options.
And remember to check your work (what do you tell your kids when they finish their homework?). Typos are one of the most-common reasons for filing errors. If you do miss something, TaxAct will alert you of any omissions and/or potential errors.
LAST-MINUTE TAX HACK #5: Consider Contributing to your Retirement Account
Did you know that you have until April 15 to contribute up to $5,500 (if you’re younger than 50 years old) to an IRA for the 2018 tax year? You can also contribute to your 401(k) as long as your employer doesn’t limit your contributions to payroll deductions.
Putting money into your retirement account isn’t just good for those empty-nester years, it can be one of the best ways to lower your taxable income right now.
Keep in mind, Roth IRA contributions don’t work the same way. That money isn’t tax-deferred. You pay the taxes owed upfront and get to withdraw it later in retirement “tax-free”.
LAST-MINUTE TAX HACK #6: Don’t Let the Clock Run Out
No one is perfect. If it looks like you can’t complete your taxes by April 15, file for an extension—TaxAct lets you file an extension for free. Please keep in mind, an extension to file is not an extension to pay any taxes owed; you will still need to send estimated taxes into the IRS by the deadline to avoid paying a penalty.
Here’s some good news: The IRS recently lowered the penalty withholding threshold for tax underpayments. Normally, tax filers must pay 90 percent of their taxes during the calendar year to avoid a penalty. But because of the massive tax reform changes, filers have a little more leeway when it comes to their 2018 tax bill —to the tune of 80 percent. That means as long as you paid 80 percent of your taxes owed last year, you won’t get penalized. Woo-hoo!
Once you’ve crossed the finish line and have filed your taxes, you may want to break out the champagne and put taxes out of your mind until next year. But just like the laundry that keeps piling up on the floor of your kids’ rooms, there’s always more to do. Good news, though—the more you plan, the less work you’ll have to do later.
Think about making changes to help you stay organized throughout the year; check your withholdings on Form W-4 at work and make any necessary adjustments to avoid owing or waiting all year for a refund. Happy filing!