Tax time is here. But before you wade in, it helps to get organized first. Whether you are a do-it-yourself preparer or use a tax service, you will still need to get your records together. It will save you time, frustration, and money if you are paying someone else.
Getting it together: If you have been throwing all your tax-related mail in a drawer, organize the documents broadly by income and deductions, and then group them by type. Add your checkbook, credit card, and investment statements and last year’s returns to the mix. There are checklists available online (or your tax preparer will have some) to help you get organized. And while you are about it, set up files so you are organized for 2013. You will be so grateful you did this at this time next year.
Tools: If you are doing your own taxes, purchasing tax preparation software makes the process immensely easier. Some sites offer free online editions for simple tax returns, and for those with income under a certain level, the State of Michigan website lists providers of free Federal and State tax preparation and filing (www.michigan.gov/taxes). The Accounting Aid Society (www.accountingaidsociety.org) also offers free tax preparation for low- and middle-income households and has over 20 locations in southeast Michigan.
Keeping records: Keep at least three years of past tax records, seven to be safe, as the IRS can go back six years if it suspects under-reporting. If you are short on space, consider scanning the documents and storing them digitally.
Avoid refund scams: So you have successfully navigated tax time and are pleased to be getting a refund for your efforts. Beware of scammers who will be anxious to separate you from your refund, or worse, your identity. If you get emails promising refunds and asking for personal information, watch out! If you get emails or phone calls or texts claiming to be from the IRS, watch out! If the real IRS needs to contact you, it will be by snail mail.
“Rapid Refunds”: There are a plethora of products that offer you cash immediately, secured by your expected tax refund. Although the concepts make sense, these products, if legitimate, often come with hefty fees that are deducted from the refund. While it is tempting to accept these offers, you are better off saying “no” and just waiting for your refund. The IRS promises to send out a refund within 21 days of receipt of an electronically filed return. It will be faster (8-15 days) if you choose direct deposit to a bank account. Your pocket book will thank you.
Ina Fernandez CPA has over 20 years of investment experience, and is currently Managing Director at Liberty Capital Management, Inc.