JACKSONVILLE, Fla. – The old saying goes: “In this world, nothing is certain, except death and taxes.”
We may not know when the first of those will happen, but we know the deadline is April 15 to get your taxes to the Internal Revenue Service. With the tax law changes and that deadline just around the corner, there are some things you can do to minimize mistakes and the tax bite from Uncle Sam.
Some of the biggest mistakes are pretty simple. Missing the deadline. Missing simple information such as not signing your return or forgetting to put vital info like your Social Security number on the form. And this year, with major changes in the tax laws, waiting until the very last minute to file.
“With all the new changes some of the things people are asking me, 'Will I still be able to itemize?'" local tax expert Martin Stubbs said. “With the standard deductions now being double, say single, last year, it was about $6,300 per person. This year is it $12,000. For married couples, it was $12,600. This year it is $24,000."
So should you itemize or take the standard deduction?
"Itemizing is going to make an attempt to take things in consideration like charities, property taxes, United Way, medical, dental, eyeglasses. But you want to balance that against the standard deduction that the federal government has already given, and you’re going to take the larger of the two,” Stubbs said.
With the changes this year, Stubbs said choosing the right filing status could make a difference between a refund and owning Uncle Sam.
“The biggest mistake I find that people have a tendency to make an error with is the statuses, with the filing status,“ Stubbs said. “For instance, a single person, well, you’re single. You know exactly what that means. But if you’re single with a dependent child in the house under the age of 17, you’re entitled to a head-of-household status, which reduces the tax liability by approximately $1,000."
What if you didn’t have enough money withheld by your employer to cover the changes brought about by the new tax laws and are blindsided by owing more than you can afford to pay right now?
“Fortunately, the IRS has set up different programs which will allow you to set up a payment plan," Stubbs said. "And, of course, there’s a cost. Costs will range between $65 to about $140 to set up that payment plan. And what they will do is, based on the amount you owe, they’re going to take a percentage. Say, for instance, if you owe $3,000, you’ll end up paying $75 to $80 per month. Of course, you can always pay more than that if you so desire. And we always suggest, the quicker you pay it all, the less interest and penalties that you will have to pay."
If you are not getting a refund this year and you have in past years, you should understand the way the tax law was restructured. It was designed to provide more money throughout the year and a smaller refund.
5 things you can do with your tax refund
1. Start or increase your emergency fund
Without an emergency fund, just one surprise major expense can send you on a debt spiral toward financial disaster.
2. Pay off high-interest debt
Paying off payday loans, title loans, debt consolidation loans, high-interest private student loans, car loans or credit card debt.
3. Spend it on something you need
Are you having car trouble? Have you put off important dental work? You need to take care of these essentials.
4. Start itemized savings accounts
Now is the time to start practicing the mindset of the disciplined and frugal consumer. First, make a budget, and break your refund into pieces, each of which plants the seed in your bank account for important future purchases. Putting your refund toward specific savings goals can prevent you from taking on debt down the road.
5. Refinance your mortgage or make home improvements
When you refinance your mortgage, you must still pay closing costs and fees. But use the refund to pay for the closing costs and you can save thousands of dollars per year on mortgage interest.