January is nearly at a close, which means most residents of the US are preparing their 2014 income tax returns. Whether you are expecting a big refund or dreading writing that check to Uncle Sam, make sure you have all the information you need before you complete this yearly chore.
You Can File for Free
Tax preparers make a fortune off of individuals who must file income taxes but do not want to carry the burden on their own. However, income tax preparation can be very simple and extremely inexpensive. This is especially true if you have few avenues of income and no special situations.
A family that makes under $60,000 per year can use this IRS tool to find a free software program. It is important to note that some companies, like TurboTax, offer free state filing as well, while other companies may charge a fee for this additional service.
If you make over $60,000, the IRS makes online forms available to you. These forms do not give you the same guidance as a software program, and they only apply to federal taxes.
Not Everyone Has to File
Some individuals find themselves going through the frustration of filing taxes though they do not have to according to the law. However, according to the IRS, even those who do not have to file should in order to get any refund that is owed to them.
Use this tool to learn if you can avoid filing a federal income tax return. In all likelihood, you will need to file a state return regardless of your federal status.
You May Have More Deductions Than You Realize
Deductions are arguably the most confusing aspect of income tax. Earnings are fairly straightforward: You report everything you earn throughout the year, including interest, winnings, and inheritance. However, there are some business expenses that you may think you can deduct that you cannot, and there are many deductions that you should take that you might not even consider.
Charitable contributions are tax deductible if you itemize. Any time you decide to donate garage sale leftovers, old furniture, or used clothing, be sure to calculate their reasonable worth and get a receipt. This goes for any other type of donation that is made to a not-for-profit organization. Note: Some charities offer free event tickets, food items, or other prizes when you donate. If you accept any of these, you cannot make the deduction.
State sales taxes are oft-overlooked deductions that can make a significant difference in the final figure. Use the IRS Sales Tax Deduction Calculator to get an idea of how much you could deduct on your taxes.
Were you looking for a job in 2014? You can deduct some job-hunting related expenses. This might include resume services, transportation, and even food and lodging if you are paying out-of-pocket to seek out-of-town jobs. You cannot deduct clothing even if it was purchased specifically for interviews. You also cannot make this deduction if you were employed while you were looking for work elsewhere.
Audits Are Rare and Mostly Avoidable
If you are both honest and meticulous when it comes to tax time, you are highly unlikely to face an audit. The IRS prefers not to conduct audits because they are very expensive and time-consuming. Indeed, only about one percent of tax filers face an audit each year.
If you want the lowest risk of an audit, avoid the “red flags” that cause the IRS to take a closer look at your return. While the largest red flag items may not be entirely truthful, like earning more than $200,000 or claiming a loss on rental properties, others can and should be double checked before filing the final tax documents.
Make sure to report all earned income. This includes primary employment, part-time jobs, gambling winnings, sweepstakes prizes, and inheritance. Debt forgiveness is also considered as a type of income and, unless the debt informally between two friends, it was likely already reported to the IRS. If your income does not match what the IRS already has on file, an audit may be on the horizon.
Excessive business deductions may lead to an audit as well. Significant travel expenses, entertainment expenses, clothing, and even surgeries that have been said to be job related have triggered audits in some cases. You should be able to deduct legitimate business expenses, but you need to always make sure that they are deductible items.
You Can Track Your Refund Online
The IRS has a tracking tool for refunds. You will need to remember the exact amount of your refund in order to check the status, which is updated once each day. If you are filing jointly with a spouse, you will also need to have the social security number for the head of household.