10 Things You Need to Know About Filing Taxes


A Few More Things You Need to Know About Filing Taxes

If the IRS is consistently writing you a big check every year, it might be time to re-evaluate your withholdings.
If the IRS is consistently writing you a big check every year, it might be time to re-evaluate your withholdings.
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5: When's My Refund Coming?

Before you file your taxes, you might want to set some expectations about when you receive that coveted -- and perhaps desperately needed -- refund. If you sent out your taxes on April 1 (no joke), don't run down the postal carrier on April 7 and demand your refund check.

If you filed a paper hard copy through the mail, you should expect a six-to-eight-week turnaround on your refund -- and that's from the day your return is accepted, not mailed [source: IRS Ten Things]. Filing electronically will drastically cut the waiting time. Expect around three weeks from when your electronic return was received. Of course, direct deposit will be much faster than waiting on the mail for a paper check.

You should also be aware that the IRS now offers a smartphone app that allows you to track your filing and refund. Enter your Social Security number and the exact amount of your refund, and you can check right on your phone for the progress of your money.

4: Withhold Less

It's hard to see getting a gigantic check from the government as a problem. It's hard to see getting a check -- no matter what size -- from anyone as a problem, after all. But if you're consistently getting substantial refunds, you might be filing your taxes wrong. Wait, that sounds a bit harsh. It's not so much that you're doing it wrong -- it's just that you could be enjoying that money all year long.

Think about it like this: Getting a refund is pretty much the government saying, "Oops, we took too much. Here's some back." While it's arguably better than the government frowning at you and demanding more money, the idea is that we all give -- or keep -- the amounts we deserve, as it comes to us.

One way to solve it? Adjust your withholding at work with a W-4. If you're withholding too much, the government owes you money every time. But if you correct your withholding so you're getting less taken out of your paycheck for taxes straightaway, you'll get more take-home pay to use year-round or invest as you, not the IRS, see fit.

3: You Can Compromise on Your Bill

Are you so worried that you won't be able to pay your tax bill that you've been avoiding notices from the IRS altogether? Bad idea. Not only are you setting yourself up for tax evasion, you're just increasing the penalties the longer you wait. And then there's the lesser-known fact about paying an IRS bill: If you can't pay your tax liability, you can compromise with the IRS on it.

Now let's be straight: This isn't something that everyone just shakes hand on. The IRS offer in compromise involves a fair amount of documentation and paperwork -- including proof that you're prequalified [source: IRS Offer]. But it has gotten a bit easier in the last few years, lowering some of the expectations of payment on the taxpayer [source: Dunn]. Basically, you have a period in which to pay off as much as the IRS determines you're able to, which at least gets them some of the revenue it's owed. (Think of it as a short sale for taxes.) It might work best for folks who've racked up quite a bit of tax debt they're having trouble paying off.

2: You Can't Avoid an Audit

It's not realistic to assume you won't get audited. Somebody has to, after all, and there's no magic formula that safeguards you. That being said, your odds of being audited by the IRS are less than 1 percent, so don't panic [source: McCormally]. But if you feel like you'd rather be on the safe side, you might want to know about some easy ways to avoid audits before you file.

Nobody should be surprised to hear that the first rule of thumb is documentation. Don't think you should avoid deductions or credits you deserve; just make sure you have good information to back up your claim. Remember, too, that your deductions need to look reasonable. If you're donating half your money to charity, your return is going to stand out. And remember to make less money. No, really: If you make over $200,000, you have a 3 percent chance of getting audited, while those making over a million bucks in earnings have odds at 8 percent [source: Ballenger].

1: Do You Even Need to File?

It sounds crazy, but you need to know that sometimes you don't need to file your taxes. In general, there's no need to report taxes if your income doesn't exceed the standard deductions (that's $6,200 if you're filing as a single person) plus one exemption ($3,950 in 2014). So if you make less than $10,150, you probably don't even have to sweat it. (Keep in mind this doesn't count if you're being paid with Social Security benefits.)

Now, if you're a dependent on someone else's return, things are a little different -- you can't take an exemption, so if you make more than $6,200, you need to file a return, whether you're a kid or an adult. (And if that money is unearned -- through investment income, for instance -- you have to report anything above $1,000 [source: TurboTax Everyone].) Do know that even if your income is under the threshold, you still might get a refund if you do file a return. Say you made $5,000 this year, and $500 was withheld: You can get that $500 back, so long as you file a return.

Author's Note: 10 Things You Need to Know About Filing Taxes

The IRS gets a bad rap for being a byzantine organization with complicated rules for everything. But in this digital age, the amount of information they provide is also a lifesaver. The IRS website has extremely helpful tutorials and basics about taxes, and you can read details about nearly every tax situation you could find yourself in. It's a terrific resource for anyone filing a return.

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Sources

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  • Bell, Kay. "10 Common Tax-Filing Mistakes to Avoid." Bankrate. Oct. 15, 2014. (Nov. 4, 2014) http://www.bankrate.com/finance/taxes/10-common-tax-filing-mistakes-to-avoid-1.aspx
  • Dunn, Stephen J. "IRS Lowers Bar for Offers in Compromise." Forbes. Feb. 6, 2014. (Nov. 4, 2014) http://www.forbes.com/sites/stephendunn/2014/02/06/irs-lowers-bar-for-offers-in-compromise/
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