In the deep freeze of winter, it’s hard to think of a coming spring, but April will be here soon with bright sunshine, blooming flowers and… Tax Day! But don’t panic. Filing taxes can be fun — especially if you can get a nice refund from it. Here are five tips to keep in mind for this upcoming tax season.
1. Don’t Wait Until the Last Minute: To take advantage of key tax credits and receive a refund, you must file a tax return. By filing early, you can avoid those last minute problems that cause you to be late or make mistakes. An accurate and timely tax return is not only essential for claiming a refund, but it is also critical for avoiding penalties and benefiting from financial opportunities, such as qualifying for financial aid, a mortgage, or a small business loan.
2. Be careful when selecting your filing status: Your filing status determines the types of tax deductions and credits you receive as well as whether you are on the hook for tax debt triggered by a spouse. If you are unmarried, legally separated, or lived apart from your spouse the last 6 months of the year and have children, you may be eligible to file as “head of household,” which reduces your taxable income. If you are married, “married filing jointly” may be the best choice to minimize your tax and maximize your refund. (If your spouse owes for back taxes, child support or student loans and your refund is intercepted, you may receive your share of the refund back by requesting “Injured Spouse Relief.”) However, injured spouse relief is not available on all state returns. If your spouse’s tax situation is more complex, consider “married filing separate” to preserve your refund and protect yourself from joint liability arising from a future audit of your return.
3. Determine your eligibility for tax credits based on your income, children, dependent relatives and expenses: You may be eligible for tax credits based on basic factors like how much you got paid and how many children or relatives depend on you. For example, the Earned Income Tax Credit provides money to people who worked but did not make a lot of money; the Child and Dependent Care Credit helps to cover child care expenses; and Education Credits helps to cover education expenses. Bring your tax preparer the names and social security numbers of your spouse, children and dependent relatives, income documents (W2, 1099, etc.), documentation of child care, and education expenses for these credits.
4. Pay yourself: By contributing to an IRA or to your retirement plan at work, you may be eligible for a Saver’s Tax Credit. That’s right, saving may give you a tax break. And there is still time. Contributions made to an IRA designated for 2013 by April 15th qualify. (Most people can contribute up to $5,500.) To find out more, click here.
5. Purchase health insurance to avoid future penalties: If you are currently uninsured, you can avoid a penalty on your 2014 tax return by obtaining insurance before March 31, 2014. You may be surprised to find out that you qualify for Medicaid or a Premium Tax Credit, which helps make purchasing health insurance more affordable by offsetting the cost of paying an insurance premium. To find out more, please click here.
Following these tips can give your finances a boost. If your income is under $58,000, you can file for free at www.myfreetaxes.com/dceitc. Need help? If you are single with income less than $35,000, or have a family and income under $52,000, you may be able to get free help with your tax return through Community Tax Aid and the DC EITC Campaign. Here’s to a less tax-ing 2014!
This post was written by Teresa Hinze, Maria Dooner and Pamela Chan of Community Tax Aid, a Women’s Foundation Grantee Partner.