Make Tax Time Simple

If income taxes have you feeling tense, this story may help you stay serene around April 15.

No day fills Americans with dread quite like Income Tax Day. Chances are, there’s at least some anxiety between lines 1 and 76 on your 1040 as you prepare to file.

But this year can be different. Honest. We’ve gathered some expert tips on ways you can ease tax-time tension.

Keep It Together
Even if you do nothing more than toss your annual tax-related documents into a drawer or shoebox, says Phillips Hinch, assistant director of Government Relations for the Financial Planning Association, “the first step in calming your nerves is to have one place to put all your tax documents.”

If you make donations or other transactions online, Hinch suggests e-mailing a copy of the receipts to yourself with a header like “2010 taxes,” to make finding them later a cinch.

If you use a tax preparer, be sure to hand over essential documents, says Cindy Hockenberry, research coordinator for the National Association of Tax Professionals. Bring along the shoebox, a copy of last year’s return, your children’s Social Security numbers (SSNs) and birth dates, and a voided check so your preparer can e-file and have any refund deposited directly into your bank account.
 
Last but not least, don’t wait until April 10 to call your preparer. Some won’t even make appointments during the week leading up to April 15. “If you owe money, you can still get your taxes done early,” Hockenberry says.

Seek Guidance or Go Solo?
Wondering whether you should do your own taxes or pay a professional? Hockenberry and Hinch agree that if you’ve had a major life change in the past year—such as getting married, having a baby, buying a house or starting a business—it’s a good idea to hire a professional tax preparer.

“A lot of people just look at last year’s return and use that as a guideline,” Hockenberry says. “But if their tax situation is drastically different from the year before, they might not have a clue where to begin.”

A professional may find more deductions than you would in the complicated tax codes, which could end up paying for the preparer’s fee—and may assume some responsibility for correct filing. “If your preparer makes a mistake, his or her firm might pay the interest and penalties,” Hockenberry adds. “And if your return is selected for audit, you could take your preparer with you, which provides a level of comfort.” 

If you do use a tax preparer, she suggests finding one who will be available for a mid-year review, especially if you make estimated quarterly tax payments. “You don’t want to be surprised that you have to cough up an extra $5,000 in April because you had a good year,” Hockenberry explains, “but you also don’t want to be giving the IRS money you could be using.”

Hinch does think there’s value to doing your own tax return: you’ll know what deductions you may qualify for, so you can keep those things in mind as you make financial decisions throughout the year. But be sure to double-check your calculations. According to Hockenberry, math errors usually make the top 10 list of mistakes the IRS finds on tax returns each year.

A Rewarding Experience
Okay, now for the part everyone’s most interested in: how to lower your taxes. Here are the three big life events that can act in your financial favor:

1. Getting married. Filing jointly is almost always a good idea. If there’s a big difference between your incomes, says Hockenberry, try figuring out your return both ways to see which works out better. In some states, however, income is split down the middle regardless.
    
2. Having a child. Besides dirty diapers, your baby will provide you with a personal exemption, even if he or she is born on December 31 of the tax year. Other children and dependents offer additional exemptions—hopefully without the diapers.
    
3. Buying a house. Beyond the standard mortgage interest and property tax payment deductions, the 2009 and 2010 tax years boast several other perks. Qualifying new homeowners are entitled to a tax credit of up to $8,000 on homes bought on or before April 30, 2010; existing homeowners with the right credentials, up to $6,500. Certain energy-efficient improvements may also pay off.

Educational Enlightenment
If this article hasn’t quenched your thirst for knowledge, you’ll find additional helpful advice on the IRS website, including forms, filing deadlines and details about specific situations. There’s even a calculator to help you figure your withholdings.

And if you’re looking for an easy way to save for your future, Hinch proposes this super-smart strategy: “Raise your withholdings so you get more of a refund at the end of the year, and then immediately put that money into a retirement vehicle.” If you do it right, you may save money on your taxes while saving for your future—not one, but two ways to put your mind at ease.

Amy Lynn Smith is an award-winning writer who has covered lifestyle and business topics for more years than she can count. After all, words are her specialty—not numbers—so she bows in gratitude to her accountant and financial planner.