Getting ready for tax season

It's the most stress inducing time of the year: tax season. There's a variety of tax terms to understand, forms to collect, and decisions to be made about filing. This is how an LSS Financial Counselor tackles the stress of tax season.

How are you filing taxes this year? Filling out paper forms, using a tax preparation software, or hiring a tax preparer? 

I filed through TurboTax because my tax situation was relatively simple. In the past, I’ve used a tax preparer when I needed the help from a professional.

How do you determine the best way to prepare your taxes? 

If it’s simple, you can use free software such as TurboTax. If you own multiple homes, rent, are self-employed or in some other way have a more challenging financial situation, consider using a tax preparer. 

In Minnesota, Prepare & Prosper offers free tax preparation if you meet eligibility requirements. Some states have agencies that offer free tax preparation if you meet eligibility requirements. Dial 2-1-1 to get your local United Way Information & Referral and ask about free tax prep sites in your area.

Are there any benefits to filing early? 

Yes, I filed my taxes at the end of January and had my refund 3 weeks later! Filing early helps avoid the rush of last minute filers that can mean a delayed refund.

How can you get a bigger tax refund this year?

Be informed, the more you know the better choices you will make.  Take advantage of all of the tax credits and deductions!  Compare the standard to itemized deduction.  Consider if you are better filing married filing jointly or married filing separately.  If you are single and have at least one dependent, check into filing as Head of Household.

What steps can you take to protect yourself from tax fraud?

Avoid giving our your social security number unless you trust the source.  Beware of scams and phishing to try to get you to provide your social security number or private financial information.  Change your passwords periodically and avoid using a password that would be easy to hack. 

If you think your identity has been compromised, take steps immediately to address.  Go to https://www.identitytheft.gov/ and complete an Identity Theft Report.  This website will take you through all steps needed to help recover.

Do taxes affect our credit score?

In general, no.  The exception is if you fail to pay and the IRS files Notice of Federal Tax Lien in court, but this is only if the unpaid tax debt is above a certain threshold.  Pay your taxes or set up a payment plan and you don’t have to worry!

What should you do if you don’t think you can meet the April 15 deadline to file taxes? 

File for an extension.  https://www.irs.gov/pub/irs-pdf/f8809.pdf

Are there any alternatives for those who can’t afford to pay their tax bill?

The IRS and state tax departments offer repayment plans.  Most will involve a fee and a minimum payment.  If you cannot set up a reasonable and affordable payment, you can enlist the help of a taxpayer advocate. Both the state in which you reside and the IRS offer a taxpayer advocate service to help resolve disputes. 

Use Form 911 to request Taxpayer Advocate assistance from the IRS.  Form 911 is available by phone at 800-829-3676, or on the IRS Internet website at www.irs.gov .

If you’re expecting a tax refund, what do you plan on doing with it? 

I split my refund between savings and paying down debts. It is really important to have a healthy savings cushion in order to avoid using credit when hit by an unexpected expense!  But paying off my car loan is a goal as well!

Any final tips on how to prepare for tax season? 

If you don’t feel confident about filing your taxes, enlist help! Don’t take a chance that you’ll miss credits and get less of a refund or, worse yet, end up having to pay when you should get a refund!

These questions were answered by Marjorie Klimek, an LSS Financial Counselor. All questions are a part of Experian’s weekly Twitter chat.