How to DIY Your Taxes – and Not Miss a Single Deduction
Tips on choosing tax preparation software to help get all the homeowner benefits.
Ready or not, the tax man’s coming. Filing your taxes yourself may not be your idea of a fun night at home, but even so, it doesn’t really have to be that bad. Yes, even if you own a home. Even if you itemize your deductions. Even if you’re scared of making a mistake.
We turned to the tax pros and nailed down their top tips to make DIY tax filing as easy and painless as possible — as well as how to ensure you don’t miss any possible deductions. Here’s what they said:
Pick the Right Software
Unless you qualify for a free version (more about this below), software prices are all over the place. Still, you get what you pay for. TurboTax is pricey at almost $60 for the Deluxe version, but both our tax experts agree: If you’re going the DIY route, it’s their favorite option.
“It’s user-friendly,” says Cathy Derus, founder of Brightwater Accounting, who, despite being a CPA, admits she’s used the program herself in the past. “It offers an online questionnaire. Then, it walks you through exactly what you need to do.” That questionnaire does a good job of helping you identify possible deductions.
But it’s not fail-safe, she added. It’s only as good as the information you feed into it.
To really make sure you’re aware of all possible deductions, get a copy of Form 1040, Schedule A, (and Schedule C if you’re a sole proprietor for your own business), says Derus. Then, “scan the forms and take note of any items you think you might be eligible to take.”
If you’re a homeowner, here are some examples of deductions you can take:
- Mortgage interest
- Property taxes
- Some costs of buying a new home
- Some costs of selling a home
For a full list of your possible homeowner deductions, go here.
Free Software Can Be Ok, Too
If your adjusted gross income is below a certain threshold — typically $62,000 — you may qualify to use one of about a dozen free software options. TurboTax has a free option, but its income threshold is lower at $31,000. H&R Block, Jackson Hewitt, and TaxACT also have free versions.
Some companies also impose other restrictions, such as age and state of residence, to qualify for a free version. That’s because for some firms, the free offering is a way to find clients who might be willing to pay for other services.
Watch for extra costs:Some companies will file your federal return for free, but then charge you for the state return, to e-file, or ask questions of a live person.
Filing for an Extension Can Be a Smart Thing to Do
If you find yourself butting up against the tax filing deadline, you can always request an extension, “so you’re not stressed out,” says Derus.
Most people don’t fully understand how extensions work, and often make mistakes that cost a bundle. Here’s what you need to know:
How to file a tax extension:
- File an extension anytime before or on April 15. You’ll avoid the late filing penalty, which is a whopping 5% of your outstanding balance, due for every month you’ve failed to file.
- If you owe money, pay as much as you can by April 15 to avoid the late payment penalty of 0.05% interest. (A whole lot less than the late filing penalty, though!)
- Make arrangements to complete your tax filing by the October 15 deadline to avoid adding extra interest payments.
Get the Benefits of E-Filing
You’ve probably already been e-filing your taxes, but are you aware of the benefits?
Why it’s better to e-file:
- 24 hours after you e-file, you can start checking on your return via the IRS’s “Where’s My Refund” online tool or IRS2Go app.
- You’ll get any refund due to you faster.
You’re also more likely to know if you filed your forms correctly, avoiding a scary encounter with the tax man. Because if you e-file, you’ve got to use software. And these programs “run a check for questions that need to be answered, numbers that don’t add up, and missing Social Security numbers,” says Tai Stewart, accountant and owner of Saidia Financial Solutions in Houston. Those mistakes tend to flag your return for a close-up review.
You’ll also wait up to six weeks for your return if you use snail mail.
By: Alaina Tweddale
Published: January 4, 2017