Tax Day can be daunting for the procrastinator, and holding off on filing your tax returns until the last possible minute can cost you.
This year, Tax Day falls on April 18 instead of April 15 because of the weekend and a holiday (Emancipation Day), but that doesn’t mean you should wait for those extra few days to file. Gathering your documents and receipts, meeting with an accountant and even retaining records for next year can relieve potential stress and maybe get you more money, and faster, if you’re expecting a refund.
“You think it’s far off but if you wait until the last minute, you can be overwhelmed by everything you have to do,” said Barbara Weltman, attorney and spokeswoman of Hoboken, N.J.-based tax service J.K. Lasser Institute. “If you take it in small bits you will be prepared for filing and you’ll be positioned to save money.”
Tax filing season begins on Jan. 23 this year (and the deadline for employers to provide W-2 and 1099 forms is Feb. 1). More than 111 million refunds were distributed last year, and the Internal Revenue Service expects to refund more than 70% of taxpayers this year, the government agency announced. About 44% of taxpayers filed their returns by the first week in March, according to IRS data MarketWatch crunched.
There is a caveat to filing early this year: your refund might be delayed because of newly implemented legislation called the Protecting Americans from Tax Hikes (PATH) Act, the IRS said. The PATH Act requires the IRS to hold refunds claiming the Earned Income Tax Credit or the Additional Child Tax Credit in their entirety until Feb. 15, in an attempt to catch potential fraud, so taxpayers impacted by this rule might have to wait until Feb. 27 to receive their refunds. For those not affected, the IRS anticipates issuing 90% of the refunds in less than three weeks
To get a head start on your taxes, experts suggest these four tips:
Make sure you have these documents
Organize your financial information, including your income statements such as W-2 and 1099 forms, receipts for major expenses, proof of charitable donations and investment documents. “People don’t keep records well,” said Brian Ashcraft, director of tax compliance at Virginia Beach-based tax preparation company Liberty Tax Service. Ashcraft suggests keeping a binder to stash documents all year long. If you’re self-employed, keep your personal and business documentation separate, along with different accounts for each, he said.
Know the difference between a standard deduction and itemizing deductions
Standard deductions are determined by the IRS and allow taxpayers to claim income not subject to federal income tax, according to Intuit, the parent company of tax preparing software TurboTax. Taxpayers can choose between claiming a standard deduction or itemizing deductions, where they list their personal deductible expenses. Tax experts suggest calculating which gives you the biggest deduction before deciding.
For 2017, the standard deduction for single individuals or married individuals filing separately is $6,350, and for married filing jointly $12,700. You can figure out your itemized deductions by adding up deductible expenses including your home mortgage interest, state and local income taxes, real estate and personal property taxes, gifts to charities, casualty or theft losses and unreimbursed medical or employee business expenses, the IRS suggests.
Seek out an accountant early
Accountants are usually at their busiest around Tax Day, so you may want to make an appointment with one as soon as possible, Weltman said. Not everyone needs to work with a tax adviser — it depends on how complicated your finances are and how confident you are in filing your return on your own — but Weltman suggests booking time with a professional in January. Some questions to ask: his or her eligibility in preparing tax returns, expertise in tax preparation and if the accountant will keep your records, which is vital in the event of an audit.
Getting a refund? Know what to do with it
It never hurts to plan what you’ll do with your refund, Weltman said. In some cases, it may make sense to pay down debt or put that money aside for the future, but in other cases a taxpayer may want to deposit the money into an individual retirement account (IRA) or health savings account (HSA). If you plan to do the latter, tell your custodian which year you’re applying it to — the custodian may assume you’re applying it as a 2017 contribution, but if you’re an early filer you can apply the money to your 2016 account before the deadline, which is Tax Day.
Some 43% of people last year spent their refunds on bills, followed closely by 38% who put the money into their savings, according to a survey of 600 people by Liberty Tax Service. Others used it to pay down debt, buy groceries and travel. Some tax preparers have their own investment products they may recommend, such as H&R Block HRB, -0.67% , the Kansas City-based tax company that was sued in 2006 because of its IRA with hidden fees and low interest rates (the company has since partnered with Bank of Internet USA to offer its IRAs, a move not made as a result of the lawsuit, a spokesman said). Whenever working with a professional, review recommendations and research your options before signing away your refund.