Procrastination is a big problem for many people in preparing taxes.
Don't believe it? The Internal Revenue Service began accepting most returns on Jan. 31 in 2014, but if past behavior is any indication, plenty of people will wait until just days before the April 15 deadline to file. By April 1, 2011, the IRS had received 89.7 million returns over the previous three months, but it collected a whopping 40 million forms in the two weeks leading up to April 15, including those mailed on April 15.
Getting a late start could put you in a tight spot. According to the IRS, the average taxpayer spent 23 hours in 2011 working on his 2010 tax return. Taxpayers filing a Schedule C for a business or Schedule E for rental properties in addition to Form 1040 toiled an average of 32 hours. Procrastinate and you could make an expensive mistake rushing to meet the deadline.
Video of the Day
Even if you can't file just yet, you can take a few steps to jump-start your return and make that last-minute preparation easier.
Looking at expenses months later, it's easy to miss something that might be deductible.
Tim Abbott, accounting and tax manager, M.J. Vandenbroucke Inc.
Estimate Your Refund or Liability
Estimating whether you will owe money or get a refund can help you better prepare. The IRS and online commercial tax preparation sites such as TurboTax offer free calculators that can help you figure out your rough tax obligation in minutes using information about your income and changes to your status in the previous year, such as buying a house or having a baby. An accountant also can whip up a good estimate for the current year and future years.
You also should factor in some of the fiscal cliff and early 2013 tax law changes, said Bill Norwalk, tax partner in charge at Northern California-based Sensiba San Filippo LLP. "Most of what was done isn't going to be an unpleasant surprise," he said. Several tax breaks that were set to expire didn't, including the American Opportunity credit worth up to $2,500 in college expenses.
If it turns out that you'll be getting a refund, consider it an incentive to file early. If you owe, get a head start on saving by putting aside a little each week to lessen the impact of the eventual bill.
Organize Your Deductible Expenses
Adding up your deductions can take longer than you might think, especially if you haven't been keeping careful records all year, said certified public accountant Tim Abbott, accounting and tax manager at M.J. Vandenbroucke Inc. in Chicago. With multiple items to hunt down, it's easier to be thorough when you're not pressed for time. "Looking at expenses months later, it's easy to miss something that might be deductible," he said.
Look through your individual receipts for expenses that might be deductible. Pull out regular bills for utilities and loans, which would come in handy for deductions involving a home office, and interest deductions for a mortgage or a student loan.
Check credit card receipts for eligible expenses or possible sales tax deductions, if you have enough big-ticket purchases. "Go through your bank statements either online or on paper, and categorize checks by expense," Rozbruch said. Even your year-end pay stub might hold possibilities, such as union dues or charitable donations made through your employer.
Also look for unreimbursed job expenses, Abbott recommended, such as classroom supplies, if you're a teacher, or cellphone minutes used for work-related calls.
Set up a filing system so that you can sort each deductible expense into a category, such as medical expenses, mortgage interest, charitable donations, and business and home office expenses. That will make it easier to reach totals when it comes time to file. Keeping such a filing system throughout the year will make filing taxes in succeeding years easier.
Pick a Preparer
Whether you want to file yourself using online software or hand over everything to a professional, early in the year is the best time to research options. "There are some bad apples out there," said Steve Katz, an attorney with Sideman & Bancroft in San Francisco. The IRS has been cracking down on providers who aren't properly preparing returns, but it's still important to read reviews online or, better yet, ask trusted friends or family members for a recommendation.
Not surprisingly, tax preparers' calendars fill up fast each year in the weeks leading up to April 15. Asking early betters your chances of scoring an appointment.
Compare based on price, too. According to a 2011 National Society of Accountants survey, the average cost for basic federal and state returns without itemized deductions is $128. If you itemize, the average bill is $233. Online software also varies in price, and customers often can use coupon codes to lessen the bill.
Plus, if your adjusted gross income is $57,000 or less, e-file providers can help you prepare your return for free.
Check Your Work
If you get an early start on preparing your return, take the time to check your work before filing. The Internal Revenue Service sent out 4,998,266 "math error" notices to taxpayers in 2011 regarding their 2010 returns. "That's a big mistake people make," said Michael Rozbruch, founder of Tax Resolution Services. Consumers could even face underpayment penalties or an audit if the numbers are significantly off.
Three areas to examine:
• Tax credits. People often misunderstand or miscalculate how much they're entitled to. The Making Work Pay credit was a top offender in 2011, generating nearly 3.3 million error notices.
• Bad math. If your refund seems unusually high, run the numbers again, Rozbruch said. General miscalculations generated slightly more than 935,000 error notices in 2011.
• Proof of deductions. The IRS sent more than 407,000 notices in 2011 regarding itemized and standard deductions. Make sure you calculate the complex home office deductions correctly and have the documentation to back up all deductible expenses.