Taxes. The dreaded 5-letter word. Somehow the American culture (and government?) has created a fear factor when it comes to our annual duty to pay taxes. Part of the reason may be that the tax code is so darn complicated, but I digress. The truth is, it doesn’t have to be a scary event. You can be informed and educated, which reduces stress and anxiety, and helps to avoid surprises when it comes to your tax bill.
The IRS as your friend?
Believe it or not, the IRS is here to help you, and provides a lot of resources for the American public to understand the process. Here are a few tips you can follow to be more confident when it comes to your taxes.
- Review your tax return document. If you hire a CPA or other preparer to do your taxes for you, that is great. By taking that step, you are ensuring that you’ve got an expert looking at your situation and preparing your taxes to give you the most benefit. However, as the taxpayer, you are ultimately responsible for the contents of your tax return – you take that responsibility when you sign the return. It’s very important to understand what your preparer has done, and if they don’t explain it or if you have questions, be sure to ask. If you’ve prepared it yourself, once you have filed the return be sure to save a copy and review it. Most self-preparing software packages don’t allow you to view the return until after it’s filed. Be sure to review to confirm that all of your information made it into the tax return. If you miss reporting a W2 or a 1099, you will be sure you get a letter from the IRS.
- Take care of the payment (or track your refund). There are multiple ways to pay your IRS tax bill. This is one of the ways the IRS tries to help you. If you cannot pay the full amount via your bank account, they will allow you to pay via credit card on their website, or set up a payment plan. Those options can be found at www.irs.gov/payments. The IRS would much rather work with you to pay your taxes than to have you just ignore your responsibility and then have to chase you down (and charge you crazy penalties and interest). So be sure to make payment arrangements! If you are due a refund, did you know that you can track the status by going to https://www.irs.gov/refunds?
- Prepare for next year. Were you surprised by how much you owed? Or maybe you received a huge refund? Your goal should be to get as close to zero at tax time as possible. Make it a point to understand what your results were, and why. Will your situation change next year? Perhaps you need to adjust your withholding on your W4 with your employer. The IRS has a withholding calculator that might help: https://www.irs.gov/individuals/tax-withholding-estimator. If you own your own business, maybe you need to be paying quarterly estimated taxes. Scheduling a Tax Strategy call with your CPA is the best way to be proactive for the next tax year. You can book one with me here.
- If you receive a letter from the IRS, DON’T panic, but DO read it. Read the letter carefully and review the information. The top right corner will typically advise which tax year the letter pertains to. Let your CPA or tax preparer know so they can review the letter as well. Sometimes the letters can be difficult to understand, so it’s always good to have a professional help you determine what action to take and how to respond (if necessary). The IRS has been known to make mistakes too, so if you believe the letter is incorrect, you have the right to dispute it. It’s also worth noting that the IRS will never attempt to contact you via social media or text message, so watch for scams. The first contact from the IRS usually comes in the mail.
- Keep your records. Whether electronic or on paper, keep all tax-related documents, tax returns, IRS letters, and anything else pertaining to your tax situation. It’s a good idea to retain these things for 7 years, although the IRS provides more specific guidance here: https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records
By taking a few minutes to debrief after your taxes are filed, you will set yourself up for success for the next tax year, all while reducing your anxiety, stress, and fear over tax time. Need more help? Request a complimentary consultation with me at www.runningvalleyfinancial.com.
