Navigating Tax Season: Key Insights for Saving

Tax season can be a stressful time for many, but with careful preparation and awareness, taxpayers can minimize their tax bill and avoid issues with the IRS. This article highlights crucial aspects of tax preparation based on information from the sources, focusing on common errors and oversights to avoid.

 

Key Considerations for the Tax Season

• Limited Changes to the Tax Code: The tax code saw few adjustments in 2024, so if your circumstances have not changed, your tax return probably won't change much.
• Extension of Tax Provisions: It is likely that Congress will extend the individual tax provisions of the 2017 Tax Cuts and Jobs Act, which are set to expire at the end of 2025. Therefore, you probably won't have to take steps to avoid a tax increase in 2026.
• Importance of Accuracy: Rushing to file could lead to overlooking money-saving deductions or making mistakes that invite scrutiny from the IRS. It is essential to review all information carefully, verify calculations, and seek assistance from qualified professionals if needed.

 

Common Errors and Oversights to Avoid

• Failing to File a Tax Return: The penalty for failing to file a tax return is 5% of the amount you owe per month, up to a maximum of 25% of the unpaid balance. If you cannot pay your taxes on time, it is better to file on time and pay as much as possible to avoid higher penalties.
• Hiring an Unscrupulous Tax Preparer: Be aware of "ghost preparers" who encourage taxpayers to claim credits and benefits for which they don't qualify, charge fees based on a percentage of the refund, and then disappear after the return is filed. Remember, you are responsible for the information on the tax return, regardless of who prepared it.
• Missing Out on Standard Deduction Benefits: Most taxpayers no longer itemize deductions. If you are over 65, or blind, you can claim an additional standard deduction. A 65 year old couple can claim a standard deduction of at least $32,300 or even more if one or both are blind.
• Overlooking Deductions and Credits for Non-Itemizers: There are numerous deductions and credits available to non-itemizers. For instance, make sure to take advantage of the tax credit for child adoption. For 2024, the adoption credit can be taken on up to $16,810 of qualified expenses per child.
• Incorrectly Calculating Qualified Charitable Distributions (QCDs): If making a QCD in 2025, ensure that the contribution is made directly from your IRA to the charity. If you withdraw the funds first and then send a check to the charity, it will not qualify as a QCD.

 

Tax-Preparation Checklist

The sources provide a checklist of documents that taxpayers need to gather before preparing their returns:

• W-2 forms (or 1099s if self employed)
• 1099-INT and 1099-DIV forms for interest and dividends
• 1099-R forms for distributions from retirement accounts
• Form 1099-NEC for non-employee compensation
• Expenses paid through a dependent care flexible spending account
• Forms 1098-T (Tuition Statement) from educational institutions
• Receipts that itemize qualified educational expenses
• Records of any scholarships or fellowships received
• Form 1098-E if you paid student loan interest
• Amount of state and local income or sales taxes paid (other than wage withholding)
• Invoice showing amount of vehicle sales tax paid and or personal property tax on vehicles
• Form 5498-SA showing HSA contributions
• Form 5498 showing IRA contributions

 

What to do if you make a mistake

• Check your work: Even minor errors such as forgetting to sign and date your tax return could delay your refund. Be sure that you have a copy of last year's tax return available to check your information
• Respond to IRS letters: While the IRS audits only a small percentage of taxpayers in person, the agency sends out thousands of letters every year to taxpayers who made errors on their returns. These correspondence audits typically involve a few issues the IRS believes it can resolve without deploying a full-scale audit.
• Seek Professional Help: Consider consulting a professional such as a certified public accountant or an enrolled agent to avoid errors, especially if you have complex financial circumstances. You can search for a tax professional at www.natptax.com or www.naea.org.

Taking extra care when preparing your tax return can save you money and prevent headaches with the IRS. The key is to be thorough, gather all necessary documents, understand the latest tax regulations, and seek professional assistance if needed.