Get a Head Start With These Tax Tips
While you don't need to have your tax returns filed until April 18, it never hurts to start preparing as early as possible.
While you don't need to have your tax returns filed until April 18, it never hurts to start preparing as early as possible. If past tax bills have left you hurting, there may be several small or obscure deductions or exemptions you aren't taking advantage of. And if you find yourself in over your head, there are a few ways to handle tax debt before it comes back to bite.
Common problems (and solutions) for homeowners
Owning a home is an expensive endeavor, and not just because of the list price. Taxes on your home can add up to a significant amount if you're not careful. Forbes listed a few common tax pitfalls that homeowners frequently run into. Among them is confusion regarding state estate taxes. While some states do not levy an estate tax, states that do have such a tax still apply them to property owners living out of state. If you have a vacation rental, for example, you still must pay estate taxes on that home, even if you claim residence in a state without estate taxes. Estate taxes could rise if you put your home in a trust for disability planning purposes, which may catch some homeowners off guard.
"Vacation homes are still subject to estate taxes in their respective states."
Fortunately, there are several ways to reduce your tax burden if you're a homeowner. There is always the option of appeal your property tax if you feel your home's assessment was inaccurate, and Forbes pointed out that this is easier than it used to be thanks to electronic records on the Internet. Making investments in green technology for your home is another way that you could possibly reduce your tax bill. There are numerous tax credits for environmentally friendly house additions like new windows or insulation. These renovations tend to reduce energy bills over time as well, and generally make your home more comfortable to live in. You can learn more about these programs on the IRS website .
Other lesser-known deductions
There are all kinds of deductions and exemptions available for people in a variety of financial situations. Kiplinger's outlined several that go unused by taxpayers every year, or may require just a bit of extra legwork that could end up saving thousands. These include:
- Charitable donations: If you kept records of any charitable contributions you made, whether they were in the form of cash or donated goods, you may be able to deduct them from your taxable income. Any contribution totaling more than $250 must have written confirmation from the charity in question. Even ingredients used to bake donated goods or miles driven for a charitable cause can be written off taxes.
- Student loans paid by parents: If parents pay their college student back for student loan interest, the IRS treats this money as the student's own and is subject to a deduction of up to $2,500.
- Unemployment: If you find yourself unemployed, keep track of your expenses through receipts so that you can claim them as deductions on your taxes. Just about any expense incurred from finding a new job, from printing resumes to employment agency fees, can be included in these deductions.
What to do if you owe
If you end up owing more in taxes than you can immediately pay, don't just delay filing them, according to U.S. News & World Report. Late filing penalties begin to accrue the day after taxes are due, and will collect interest. If you're stuck in a difficult tax situation, you can always request an extension that will delay your payment due date. Another option is to ask for leniency, which is viable if you have good payment history and owe less than a certain amount. This will exempt you from paying a late fee, but you still have to pay the full amount due. The IRS can also set up a payment plan, in which you pay your taxes in installments. What you absolutely shouldn't do, however, is neglect to contact the IRS at all and explain your situation. They will almost certainly find you eventually, and if you've made no effort to pay, you could face significant penalties or even jail time. When it comes to paying taxes, you just have to be honest and cooperative.