Tax season has arrived — it’s time to start checking the mail for those W-2 forms and getting ready to send in your tax return. Are you ready to file? Have you located the necessary paperwork — Social Security information, receipts, last year’s return, etc.?
What about filing options? Have you decided whether you’re going to go to an accountant, a tax service store, like H&R Block or Liberty Tax, or if you’re going to try and go at it alone? Well, before you click on that tax preparation site or call that tax professional, there are a few things you should know first.
What’s your main goal?
As of mid-February 2014, the IRS had already issued over $100 billion in refunds for the tax year. The majority of taxpayers (around three out of four) are usually entitled to a refund, and many of these individuals (around six in 10) plan their withholding so that they strategically receive a a fat check at tax time.
The remainder of American taxpayers break even or may even end up owning money back to the government. This happens to some self-employed individuals, some people who over-estimate their withholding allowances, and people with other income from outside sources, for instance.
Of course taxpayers should take advantage of any and all tax benefits to which they are entitled. But, if you have a lower income and your tax liability is easily zeroed out through basic deductions, for instance, you may want to just take the standard deduction and try and qualify for other benefits, like refundable credits (which can be added to your refund).
However, for someone who has a higher tax liability that’s not immediately zeroed out, they may want to compare the ins and outs of every income or tax-reducing scenario to get their liability down as much as possible.
So, what are you trying to achieve this tax season? Are you trying to get the biggest refund check possible? Or are you hoping to find a way to avoid paying an arm and a leg to Uncle Sam? There are so many options when filing and if you know your main goal, you can narrow it down a bit. This can save you time, and money if you go through a professional.
Each year, the IRS makes changes to the tax code. Of course, you’re not expected to memorize the entire code, nor are you even expected to keep track of all of the year-to-year changes. But it is important to know that just because you received a $3,500 refund last year, that doesn’t means you’ll receive that amount (or any amount) this year — even if your situation hasn’t changed.
This tax year, several changes have taken place, such as the standard deduction being higher than it was last year. The income thresholds for each tax bracket have also changed, as well as the maximum earned income credit and the annual exclusion for gifts, for instance.
Your basic Obamacare info
The Affordable Care Act, or Obamacare, has added even more variables into the tax filing equation. According to estimates published on CNBC, one in four H&R Block customers will see their refund change because of the ACA.
The ACA can impact taxpayers in a few different ways, depending on which category of taxpayer they (and their dependents) are:
- Non-ACA insured — those who have qualifying insurance may just have to check a box indicating that the ACA penalties and credits don’t apply to them.
- Marketplace insurance buyer who took advanced credits — those who have marketplace insurance, and took advanced premium tax credits to reduce the cost of their plan, will have to make sure that their income didn’t change and everything still lines up the way it should and they don’t owe any money. Some of these taxpayers may even apply for additional credits at tax time.
- Marketplace insurance buyer who did not take advanced credits — those who have a marketplace plan, and did not use premium tax credits to reduce the cost of their plan, may be able to use these credits to lower their tax liability and maybe even earn a higher refund.
- Uninsured — finally, those who do not have private insurance, marketplace insurance, or any type of qualifying insurance at all will end up paying the dreaded fine, or they’ll have to see if they qualify for an exemption.
Of course, you don’t need to know the entire ACA, but you should know which category of taxpayer you fall under.