This was originally published on Monday, February 03, 2014, in the Pacific Daily News. Click here to subscribe to the PDN.
Question: I am getting ready to start working on my taxes; do you have any tax tips to share?
Answer: The tax season officially started on Jan. 31. Taxpayers can now start filing their 2013 income taxes. It is always best to get started on your taxes as soon as you can. The sooner you start, the better chances you have of correcting any mistakes before the April 15 deadline. Starting early also alleviates any stress and anxieties you may get when filling your taxes.
Start by collecting all the necessary documents needed to prepare your taxes, such as medical and dental expenses, education costs, mortgage interest information, bank statements and any other documents that you may need to justify your earnings and expenses. Don’t forget your W-2. Your employer should have handed it to you or placed it in the mail by Jan. 31.
If you haven’t received your W-2 in the mail by Jan. 31, give it a few weeks. If you don’t have it by mid-February or lost your W-2, contact your employer and ask them to issue one or replace the one you lost. If you still have not received one after contacting your employer, then call the IRS at 1-800-TAX-1040.
They can send a letter on your behalf. You still have to file your taxes on time with or without your original W-2. Fill out Form 4852 to estimate your income and withholdings. If you receive your W-2 after filing, you may need to correct your tax return. If you do need to make corrections, fill out Form 1040-X to amend your return.
Next, create a filing system to keep all your paperwork in order. It can be as simple as a shoebox or a high-tech software program. I find keeping tax documents in a folder throughout the year and that scanning my documents and saving it on my computer also is another way to organize my documentation. Just remember that computers do crash, so hold on to your original documents. Besides, if you are chosen for an audit, you will most likely need to show the original documentation. It is a good idea to keep your tax returns and documents for at least seven years to be safe. Use a cross shredder and thoroughly shred all documents to prevent sensitive information falling into the wrong hands. The information on your taxes can be used to steal your identity.
Once you get your paperwork in order, figure out whether you want to itemize or take the standardized deduction. Itemizing takes a little more time and requires a lot more documentation. The standard deduction is always easier, but may result in a larger tax bill.
To determine if it would be more profitable to itemize, calculate to see if your allowable expenses you paid last year exceed the standard deduction. Your allowable expenses are mortgage interest, property taxes, medical and dental expenses, and so forth. If you and your spouse are filing separate returns and one of you decided to itemize their deductions, then the other spouse also must itemize their deduction. According to the IRS these are the basic standard deductions:
• Single tax payers — $6,100;
• Married, filing jointly — $12,200; and
• Head of household — $8,950.
These are the standard deductions most of us pay. For those 65 and older and/or legally blind, you get an increase in deductions. Visit the Internal Revenue Service’s website at www.irs.gov for more information.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com/