Do you avoid planning for filing your taxes because you’re spooked that it won’t go well?
Try to relax a bit. Taxes don’t have to be as gory as our darkest imaginations can have us believe – here’s why.
1. Early Organization Will Keep You From Turning Into a Werewolf
One of the best things you can do with only a few months left in the year is to start reflecting on your year and start gathering receipts for tax deductible expenses you paid like charitable contributions, unreimbursed employee expenses, or expenses for your business.
You can also make some smart end of year tax moves to help lower your tax liability like contributing to your retirement, donating to charity, or going to those doctors’ visits you’ve been putting off.
If you make some of these moves now, you will be ready to go online and file your taxes as soon as season opens.
Plus TurboTax will help you effortlessly file your tax return online- in some cases free. That will prevent you from sneaking through the night in the eleventh hour of the tax filing deadline to find someone to do your taxes.
2. Don’t be Afraid if You Can’t Pay
One of the most mortal fears all taxpayers have is being unable to pay their tax bill. It can happen if you don’t take out enough taxes.
But you don’t need to decorate your house with wolfsbane and stay up every night shivering in anticipation of the tax boogeyman crashing on your house and dragging off your life possessions. The IRS has provisions for just such an outcome, and they’re taxpayer friendly.
You can set up a payment plan with the IRS by going online or calling them. They will generally allow you to set up a payment plan with payments spread out over up to 72 months. That should keep the payments low enough to be affordable.
With the end of year coming, you can also figure out what your tax liability will be and make an estimated tax payment. TurboTax TaxCaster can help you figure out what your tax liability will be so you can make an estimated payment by the final estimated payment deadline.
3. Deductions May Take the Bite Out of Your Tax Bill
It’s pretty easy to spook yourself by adding up all of your income and imagining the worst when it comes to the amount of taxes that you will owe on that amount. But not nearly all of it will turn out to be taxable. That will not only mean that not all of it is subject to tax, but that you’ll generally be taxed at a lower rate.
For 2016, the personal exemption is $4,050 per person. The standard deduction is $12,600 if you’re married filing jointly, $9,300 for head of household, and $6,300 if you are either a single filer or married filing separately.
That means that a married couple with two children can take the standard deduction of $12,600, plus $16,200 in personal exemptions ($4,050 X 4 people), so that the first $28,800 will not be subject to tax.
If you can itemize your deductions – medical expenses, state and local taxes, mortgage interest, and other expenses – you can deduct much more than the standard deduction. Let’s say that you have $20,000 in itemized deductions, plus four personal exemptions for $16,200 – that means that you’ll owe zero income tax on the first $36,200 that you earn.
If you are self-employed you may also be able to deduct business expenses you may have never dreamed of like the actual expense of your car, computer equipment, supplies, and start up costs.
4. Retirement Contributions Can Put a Stake in the Heart of the Tax Vampire
If tax deductions and personal exemptions aren’t enough to exorcise your tax demons, you can add a silver bullet or two by making a retirement contribution. You can lower your taxable income by $5,500 (or $6,500 if you’re 50 or older) with an IRA contribution. If you and your spouse each take one, $11,000 (or $13,000) of taxable income may simply disappear.
Even better is an employer sponsored retirement plan, like a 401(k) or 403(b) plan. They can enable you to protect up to $18,000 (or $24,000 if you’re 50 or older).
Retirement plans are among the best tax killers available. If you’re not participating in one you’re letting the tax demons haunt your house longer than they need to.
5. The Horror Ends Happily: You May Be Entitled to a Tax Refund
Taxes may not even be the monster most of us imagine them to be. According to the IRS latest statistics, close to 75% of taxpayers received a tax refund last season and the average refund is about $2,700.
That prospect should take the horror out of income taxes, and free your soul to get on with the rest of your life. Plus, TurboTax will help you effortlessly file your taxes by asking you simple questions about you and giving you the tax deductions and credits you’re eligible for based on your entries.