Tax season is here and with it comes a whole lot of anxiety for anyone who’s subject to income taxes. For some, the stress of dealing with this financial obligation can outweigh any benefits the government might provide. For others, the prospect of potentially having to pay more in taxes is a constant source of stress. Thankfully, there’s help available! Whether you’re a complete novice or a seasoned tax pro, the IRS has a set of resources that can ease your mind and help you avoid getting hurt in tax season. You can take several steps to reduce your tax burden and have a great tax season instead. The key is to understand where your money is going so you don’t end up paying more than you need to.
The IRS has identified and tax-preparation issues with certain software programs. These issues can cause inaccuracies in the number of deductions, restrictions on the amount of certain deductions, and more. Certain software providers have been known to conduction more fraudulent tax returns than the IRS can track. If you choose to use a tax preparation software, you need to make sure that provider is legitimate.
Diversification of Income
One of the best ways to reduce your taxable income is to diversify your income. This means that you’re not putting all your eggs in one basket. Instead, you’re spreading your income across a variety of different investments to reduce your overall tax burden. Diversifying income also allows you to take advantage of tax-free distributions from retirement plans, government benefits, and other retirement-aged individuals. You can also consider diversifying your investments through mutual funds and exchange-traded funds.
Rollovers and Transferring Funds
If you’re in a position where you want to roll over an existing fund, but your current account doesn’t allow you to withdraw funds from your current account, you can transfer funds from your current account to your new account. This allows you to keep your current taxes as close to the same amount as when you first began investing. There are a couple of gotchas to watch out for, though. The first is that you can only roll over funds that you own the stock or bond rights to. If you sold those securities, you can’t roll them over. You also can’t transfer funds from your retirement plan to another retirement plan, even if you want to disconnect your old plan and transfer money into your new one. This is because the funds must go through a stock or bond trading facility before they can be distributed.
Free Tax Accounts
The IRS offers free tax preparation and filing services for individuals and families who make less than $100,000 per year. These services are provided through Tax Counseling for the Elderly (TCE). TCE provides free tax-filing services to people who are 50+ and live in Northern California, Southern Oregon, and Washington, Dhi’s Bar, and SeniorCreditCards.com. Federal tax forms are available free of charge with the exception of the forms used by corporations. These forms are usually “filed and printed in a computer-generated format that is so complex and detailed, many taxpayers may not fully understand the process.” The IRS also offers assistance with self-preparation contests, and representatives from the IRS are even available during regular business hours to help taxpayers navigate the tax-filing process.
Tax Preparation Software
There are many tax-preparation software programs available for free or cheap. These programs often attempt to use an automated process to complete the tax forms and send them in for review by the taxpayer’s tax advisor. While these programs are a helpful way to get started, you should familiarize yourself with the forms and understand the tax implications of each expenditure you make. This is because you may end up filing a tax return that’s substantially different from the one you intended. Ideally, you’d have hired a CPA to help with your taxes, but some people are unable to afford the fees. If this is the situation, you can read up on each tax form and figure out what information you need from your advisor. Once you have a feel for the form, you can hire a tax prepare who uses a different software program.
The final tip is to set goals for yourself for the upcoming tax season. It’s easy to get overwhelmed with all the tax forms, documents, and requirements from one year of filing taxes. If you want to make an impact this year, make sure you set goals for yourself to focus on during tax season. Each of these steps can help you have a great tax season and avoid getting hurt in tax season.