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10 Things You Need to Know About Filing Taxes

        Money | Taxes

U.S. postal worker J. Goodwin (R) helps a customer in line at a New York City post office on April 15, 2005. With the ubiquity of tax prep software, those lines have shortened considerably.
U.S. postal worker J. Goodwin (R) helps a customer in line at a New York City post office on April 15, 2005. With the ubiquity of tax prep software, those lines have shortened considerably.
Anthony Correia/Getty Images News/Thinkstock

You'd think that an activity we're required to take part in every year might be old hand by a certain age. Shouldn't we know all there is to know about filing taxes, especially since it's a compulsory event in which we're all obligated to take part? But then again, think about the homemade caramel rolls you make every holiday season. You've made them for years, but you still need to get that recipe out each time, and -- of course -- you still manage to burn the butter at least once.

Taxes are no different. We all can use a refresher, and let's not forget that the tax return recipe can change annually, too. So let's jump right in and get one big question out of the way: Did I miss the deadline?

10: Uh, When Are They Due?

Yes, you can totally be forgiven for not knowing when exactly your taxes are due -- especially if you're asking because you want to pay them now. But remember: April 15 is Tax Day.

Now, if you missed the deadline, don't just run to Barbados and change your identity. Yes, you might face penalties for filing late, but the sooner you file, the fewer you'll have. The IRS absolutely takes interest on your outstanding return.

But even if you're kicking yourself because you were due for a refund, don't lose hope. Filing late doesn't mean you automatically forfeit what the government owes you. Just don't wait too long, because the statute of limitations runs out after three years. Miss that, and you've essentially given a charitable contribution to the IRS -- in the form of your refund check [source: IRS Filing].

9: Deductions and Credits

The IRS gets a bad rap for making tax code more complicated than it needs to be. But we don't give them enough credit for, well, the credits. After all, the IRS doesn't just find one or two ways to give you a fair break come tax time; they find a ton.

When you're filing your taxes, it's important to know the difference between credits, deductions, and refundable and nonrefundable credits. Those are all going to save you money, but it's good to know how each one will help your bottom line.

Let's start with deductions. Deductions are going to lower your taxable income. (So if you make $50,000 and get a $1,000 deduction, you're being taxed on $49,000.) A credit will decrease your total tax liability. For instance, say your taxes on $49,000 equal $2,000. A credit of $500 will decrease that liability to $1,500.

A nonrefundable credit means that you can lower your tax limit as low as it can go. So essentially, you wouldn't have to pay any taxes at all if you had enough nonrefundable credits. But it only goes to zero; there's no refund in it for you. Refundable credits provide just that. They can either decrease your tax liability or increase your refund amount if it goes below zero.

8: Estimated Taxes

Getting your ducks in a row to file taxes as a person with a single employer is hard enough. Figuring out how to fill out your return when you're self-employed, freelance or an independent contractor can be extremely intimidating. While it's important to keep track of all your income for tax purposes, it's easy to see how receiving loads of different checks might result in an oversight that leads you to underpay your taxes that year.

But no reason to panic. The IRS actually has a setup in place to help those who aren't getting money withheld from a regular paycheck or salary. The key? Paying your taxes several times a year. Nope, that doesn't mean you're filing a return every three months. Instead, you're asked to send in estimated quarterly payments to the government so that you can easily track the money you earned -- and owe. Of course, it helps the IRS too; the agency likes receiving revenue throughout the year just as much as you.

You'll still have to file a year-end return, but if you're diligent about your finances, you won't be surprised by a huge tax liability come April.

7: Electronic Filing Accuracy

Before you start your taxes, you may be unsure about whether you should go ahead and file online or take pencil to paper. There are some pretty specific benefits and drawbacks to either, so let's walk through what might work best for you.

First off, electronic filing is a lot simpler for most folks. As long as you understand how your computer works and feel confident about your ability to navigate online, you'll probably find that using tax preparation software is going to guide you through the process much more efficiently than you would be able to do on your own. Keep in mind as well that while the IRS reports a 20 percent error rate on written returns, electronic filings bring back less than 1 percent with mistakes [source: TurboTax Tips].

Of course, there are drawbacks to filing online. Paper returns are also free to fill out and file (minus a stamp), and some folks' taxes require forms or procedures that might not be covered in a basic software program. So let's look at one other trick you might want to know about before filing your taxes: how to do it for free.

6: Free Online Filing

Trying to decide between hiring someone to do your taxes, filing a hard copy or doing it yourself electronically is a pretty big tax decision. If one of the big drawbacks to online tax prep is the cost, don't get out the pencil yet.

Here's the thing: If you earn less than $58,000 a year, you're eligible to file online at no cost. The IRS works with over a dozen private tax preparation software companies to offer free services to those who qualify. As long as you meet the criteria for the individual company, you can file without cost -- and with the benefit of their tax guidance services.

It is important to note that not all the companies have the exact same rules. TurboTax, for instance, will let you file for free only if you have income of $30,000 or less (unless military) or qualify for the earned income tax credit. TaxACT, on the other hand, asks for an income of less than $52,000, along with some residency requirements. The IRS can help you pick the right option, so long as you can answer a few questions about your income [source: IRS Free File].