PREPARING FOR TAX SEASON
Michigan Credit Union League - Your Money Matters
It's tax time again. Many of us will spend the next two months dreading the April 15 deadline. One month will be spent procrastinating the process, the next month searching for all the paperwork and then one week before the deadline, you finally put the pencil to the paper and actually fill out the forms.
Once the forms are in the mail, it doesn't seem all that bad. Then promises are made to get it over with early next year. Well it's already next year. What are you doing to prepare for 1997's taxes? Here are a few simple things to do, beginning today, to make the inevitable less frustrating.
Organize Tax Papers
Start collecting all those letters that arrive in your mailbox marked "Important Tax Information Inside." Get a file and mark it "1997 Tax Papers." Even if you don't want to look at those papers now (other than making sure they're yours) you need to put them in a safe, organized place for the future. These papers include tax forms, W-2 forms, 1099 forms, last paycheck stub of 1997, receipts for child care, tax-deductible gifts and investment statements. If you're not sure whether or not you need to keep something, keep it until after you do your taxes. You'll save yourself time and frustration if you have everything in one place, ready to go when you become inspired.
Watch for Missing Forms
You should have received your 1997 W-2 form from your employer by January 31 of this year. If not, ask for it. If you didn't receive your IRS tax forms in the mail, or think you will need additional schedules, the library, post office, credit union or other financial institution will likely have them available for free. You can also call the IRS toll-free number, 1-800-829-3676, to order forms, schedules and other free publications. Not having the right form is just another excuse you might use later to delay your taxes for one more week.
Consider an IRA or 401k
IRAs are designed as a long-term savings plan for retirement. The growth of an IRA is tax-deferred, which means you pay no tax on income earned from interest, dividends or capital gains until you withdraw the money, presumably at retirement. That allows the IRA to grow more quickly than other investments that are taxable. Many people can deduct up to $2,000 a year on their taxes for their IRA contributions.
Another great way to beat the tax man is to contribute to your company's 401k plan. These savings plans are pre-tax dollars and interest accrues "tax-free."
Major factors that affect the deductions include income and participation in an employer's pension plan. Even if you are not eligible to take a full deduction, you may be eligible for a partial deduction, depending on your income. Check with your tax advisor to find out how much you can deduct. You have until April 15 to open or contribute to your IRA account in order to take the deduction on your 1997 taxes, which makes it just about the only retroactive tax deduction available.
Your credit union or other financial institution representative can help you understand the tax-savings nuances of the IRA.
Know Where to Get Help
Okay, admit it. You don't understand everything you read in those IRS booklets. Don't feel bad, the rules can be confusing even to the experts. If you have a question, ask. The IRS has tax help telephone numbers which are toll-free and provide free information to your questions. If the IRS should make an error in answering your question, you are still responsible for the payment of the correct tax. However, you will not be charged a penalty. Keep a record of whom you spoke with, time and date that you called so that you have backup documentation if an error does occur. In Michigan you can reach the IRS at 1-800-829-1040.
You can also get free assistance by walk-in service at most IRS offices. These individuals cannot prepare your taxes, but they can give you line-by-line, self-help tax return assistance in either an individual or group setting. You can get your answers, take good notes and place them in your file until you're ready to figure out your taxes.
By taking these few simple steps now, you won't feel so bad about your procrastination - because you are doing something after all. When you are inspired to fill in all the numbers, you'll have everything organized and ready to go. If you do run into a few glitches or additional questions at the last minute, you'll know who to call for help.