Now that you can start filing your tax returns, here’s how to make sure you don’t mess up.
Though you can certainly put together your Form 1040 on your own — after you’ve received all of the necessary documents — tax experts warn that it’s easy to make mistakes. Those slip-ups can cause you to miss out on valuable deductions or wind up with altogether inaccurate data.
“One of the easiest ways to avoid making any tax mistakes or to miss reporting something is to spend 15 minutes before you start preparing your return and review your last two years’ worth of tax returns,” said Debbie J. Freeman, director of tax and financial planning at Peak Financial Advisors in Denver.
Know your filing status
You and your spouse are on awful terms and you don’t live together. You share custody of one child. Do you file as a head of household or as married filing separately?
As long as you are legally married by the last day of the tax year, you must file jointly or separately. Head of household status is primarily reserved for divorced people with kids. Whether they can use that status will depend on which ex-spouse is spending the most time with the children, said Freeman.
Your filing status matters because it will determine the deductions and credits you can take, as well as your tax load.
Track your health savings account contributions
If you have a health savings account, you’re probably aware of its three major tax advantages. Your contributions are tax-deductible and are done with pretax money if you make them via payroll. Your savings will grow free of taxes, and you can pay for qualified medical expenses on a tax-free basis, as well.
Taxpayers often forget to make note of their contributions to these accounts, which may mean they’re missing out on a tax deduction. “A lot of times, people make contributions to their health savings accounts one time in the year and then forget to take it as a deduction on the tax return,” said Freeman.
Don’t miss out on IRA savings
You’re allowed to contribute up to $5,500 a year ($6,500 if you’re 50 and over) to an individual retirement account. You may be able to take a deduction for a contribution to your traditional IRA, depending on your income and whether you or your spouse has a retirement plan at work.
Even if you don’t get the deduction for throwing in a few bucks toward your IRA, you should still track and report your contribution.
This is because when you take your distributions from the IRA, your nondeductible contributions will be returned to you free of taxes, said Freeman.
Don’t celebrate just yet: Every payout from your nondeductible IRA in retirement will have a portion that is taxable and a portion that isn’t.
There’s no form for 529 college savings contributions
More than 30 states will offer you an income tax deduction for the money you sock away in this tax-advantaged college savings plan.
“This isn’t reported on a form,” said Chris Benson, a principal at L.K. Benson & Co. in Towson, Maryland. “Clients have to tell us what they’ve contributed.”
Clean out your closets for a deduction
You can collect a charitable deduction for your old suits and furniture, but be sure to ascertain the value of those items. “Clients will tell us they’ve donated three bags of clothes,” Benson said. “You have to figure out the value or you can’t take a deduction.”
If you’re claiming a deduction greater than $500 for your noncash donations, you’ll need to file Form 8283 with the IRS. If you’re feeling especially generous and your gift exceeds $5,000, you will need an appraisal, said Freeman.
For your reference, Goodwill keeps a valuation guide for clothing and household items.
Divorced people: Be sure you can claim your child
If you’re divorced with children, be sure that you and your ex are on the same page about who is claiming which child and who will be the head of household for that tax year.
“Your decree might say that you change your dependents if you have multiple kids each year,” said Freeman.
“If you have one child, one ex might claim the child on even years and the other during odd years,” she said. “That’s easy to mess up.”