Five Things to Keep in Mind this Tax Season
Is it really that time of year again? I admit it: I dread tax season. I hate gathering my paperwork, tracking down my W2, making sure I have all my interest and dividend statements. Taxes will never be something I enjoy, but at least I can be prepared. Here are five things to help get you ready for this year’s tax season.
You don’t have to pay to get your taxes filed. It’s estimated that Americans spend up to $215 BILLION each year on tax preparation, with the average cost for preparation coming out to $176. But there’s no need to empty your wallet just to file a return: service members and their families can use Military OneSource’s MilTviax software to file their taxes for free. Have questions? They have tax consultants available both by phone and via online chat.
You can also see if there is a VITA (Volunteer Income Tax Assistance) site near you. Depending on income level or military affiliation, you may be able to have trained volunteers prepare and file your taxes for free.
And the IRS Free File Alliance allows taxpayers who make under $72,000 to prepare and file their taxes online for free.
Here’s a blog with more details: Three FREE (We Promise!) Ways to File Your Taxes
Take advantage of credits and deductions. I’m not saying you need to be a tax expert, but knowing about military-specific and other tax credits and deductions is very helpful when it comes time to prepare your taxes.
There have been several big changes to tax laws over the past few years, and there are still a host of benefits that have been around a while but are still very important, such as state tax flexibility for military spouses, unreimbursed moving expenses, and deductions for reservists. It’s worth knowing about these benefits ahead of time since they can really affect the amount of taxes you’ll pay.
A big refund is NOT a good thing. There are folks who celebrate getting their tax refunds and treat it like a windfall bonus. The truth is, if you get a really large tax refund, then chances are you have been overpaying your taxes all year. The refund is simply Uncle Sam returning your money back to you. Congratulations! You gave the federal government an interest-free loan for a year.
A better plan is to adjust your withholding via IRS form W-4, either on myPay or through your civilian employer. In a perfect world, you should get a refund of zero, only paying taxes as necessary and keeping more money in your pocket each pay period. The IRS has a Tax Withholding Estimator that can help you make sure you’re getting the proper amount withheld from your pay.
You should revisit your W-4 periodically especially when there are changes to the tax laws or you have a major life event, such as a marriage, divorce, birth of a child, or a change in income.
Have a plan for your refund. As I said above, in an ideal world, you would not get a huge tax refund. But if you do happen to have a tax windfall heading your way, make sure you have a plan in place.
We often suggest the 30-40-30 plan: use 30% of your refund to pay off debts or catch up on bills, use 40% of your refund to pay for current expenses, needs or wants, and use the final 30% of your refund to establish or build up savings
Beware of scams. The tax season seems to bring out fraudsters in full force. It’s useful to know that there are just certain things the IRS will NEVER do – such as contact you by text, email, or social media or demand immediate payment.
And if you ever think that you have been scammed or contacted by an individual claiming to be the IRS, report it immediately. Contact the Treasury Inspector General for Tax Administration or report it to the Federal Trade Commission via the FTC Complaint Assistant.
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- Written by Lila Quintiliani
- Category: Blog
- Published: 25 January 2021