In 2010, 34.8 million taxpayers filed their own taxes electronically, up from 32.8 million in 2009, a 12-month gain of 8.2 percent in electronic do-it-yourself tax preparation, according to federal data. But whether you handle your own taxes or pay for the services of a certified public accountant, there are several ways to get the most out of the annual ritual of tax preparation, according to experts in finance and organization. Here are money-savings tips for tax season.
The tax code is complex and changes from year to year. Ignorance of beneficial tax changes can be costly. "You could miss out on money," said Elaine Smith, a tax adviser at H&R Block. You may qualify for different deductions based on improvements to your home or major changes in your life.
For example, members of the "sandwich generation," a category of taxpayers who support children and elderly parents, might be eligible for the "qualifying relative exemption," a deduction of up to $3,650 in expenses for medical care, education, food and housing costs. To find out if you qualify for different deductions, check out the "Am I Eligible" tool and other online resources at IRS.gov. Jackson Hewitt also provides a list of 50 "commonly overlooked deductions" on its company website.
There are hidden penalties for disorganization. For instance, faulty record-keeping and missing documents can hurt or limit your efforts to claim some tax deductions. And even if you have collected the necessary paperwork, but have failed to organize your records, disorder can be costly — especially if you hire a tax professional, who will charge lofty fees for simple bookkeeping and organizational chores. "You should use your accountant to prepare your taxes, not organize your paperwork," said Standolyn Robertson, past president of the National Association of Professional Organizers and owner of Things In Place.
"At the first of every year, set up a large envelope or folder titled with the current year and start accumulating tax-related income and expense information during the year as you go along," said Carol Sokolow, a certified public accountant based in Miami. Collect receipts and credit card slips that document business expenses, major purchases, charitable donations and other notable transactions. Just remember to reserve enough time to organize your documents, the experts recommend.