Many people don’t work well under pressure, and you may face a time crunch to complete your personal tax return.
It’s never too early to start preparing for your tax returns. So, before you let the tax deadline sneak up on you, take a moment and review this tax return checklist. These tips can help you file an accurate tax return, and minimize the taxes that you owe.
1. Calculate your alternative minimum tax
Check your return for the alternative minimum tax (AMT) calculation.
AMT was put in place to help ensure that high-income taxpayers pay at least a minimum amount of federal income tax. Prior to AMT, certain tax benefits allowed many high earners to pay very little income tax, or no tax at all. AMT was put in place to reduce the level of tax benefits for some taxpayers.
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When you calculate the tax on your income, you need to perform an additional calculation for AMT. AMT takes your taxable income and adds back certain items that are not included in your original taxable income. Interest on certain types of municipal bonds, for example, is added back to income.
If the new level of income is high enough, you may need to pay tax based on the AMT income – not your original taxable income total. Many people who do their own tax return using software, are not aware of the AMT calculation, and are surprised when the software reports a higher tax liability due to AMT.
2. Contribute to a retirement account
Keep in mind that you can make Individual Retirement Account (IRA) contributions after year-end.
You benefit by adding to your retirement fund, and the contribution may be tax deductible on the 2017 return you file this April. The deductibility of your IRA contribution is phased out, depending on your total income, and the current contribution limit is $5,500 a year ($6,500 if you’re age 50 or older).
If you’re self-employed, you may contribute to a SEP IRA, and you still have time to make that contribution before you file your 2017 personal return
3. Check your income
Does your income look reasonable? When you complete your tax return, whether by hand or using tax software, take a look at the income total. You don’t need to be a CPA to catch some obvious mistakes. Does the number look reasonable, based on your salary any other income you earned?
If you earned $60,000 in salary and reported $500 in interest and dividends, for example, $100,000 in total income would indicate a mistake in the tax return.
Filing a return with a large error will require you to file an amended return, and that process is time-consuming and frustrating. This simple check will help you avoid filing an incorrect return.
4. Filing an extension and your tax liability
Filing for an extension to pay your taxes later does not change your tax payment due date. April 17th is the due date for filing a personal tax return this year. If you request an extension to file your return later, your tax liability is still owed on April 17th.
The reason that many people ask for an extension of time is because their tax situation is more complicated than in past years. However, you should be making estimated payments each quarter if you’re a business owner, or paying your tax liability through withholdings on your wages.
5. File online
Make the effort to file your return electronically, because you’ll receive confirmation that the return was filed before the tax deadline. Electronic filing also ensures that your entire tax return gets transmitted, and the IRS will process a tax refund faster if you use this method.
Fortunately, tax software allows you to file your return electronically.
6. Review your statements
Rather than simply look at receipts, the best way to verify that you’re reporting all of your income and deductions is to review your bank and credit card statements.
If you’re self-employed and receive payments through PayPal, generate a report with your PayPal payments and fees.
As you review these documents, you may notice a large medical bill that you paid out of pocket and didn’t report as a medical expense. Or, you may catch a $500 gift to charity that you left off of your return.
Keep these statements on file with your tax return because they are the best way to prove your income and expenses.
7. Supporting schedules
You should have a basic understanding of the supporting schedules that you must send with you tax return. Here are some examples:
- Schedule A: If your itemized deductions are greater than the standard deduction amount, you should complete Schedule A, Itemized Deductions. For example, the standard deduction for married couples filing jointly is $12,700 in 2017. If your itemized deductions are more than $12,700, you should use Schedule A and attach it to your tax return.
- Schedule B: Taxpayers report interest and dividend income on Schedule B. If you earn interest on a bank account balance or receive income from stock and bond investments, you report the income using this schedule.
- Schedule C: This schedule is used to report profits and losses from a business, and self-employed people report their business income on Schedule C. If you earned $60,000 as a self-employed person and filed Schedule C, the income is added to any other income you earned and posted to Form 1040.
There’s an easy way to verify which schedules you need to attach to your tax return. Scan down your completed Form 1040. If you need to attach a particular form, you’ll see an instruction on the tax form. For example, wages, salaries, and tips are reported on line 7, and you’re asked to attach Form W-2 for wages. If you use tax software, make sure that the software generates each of the forms you need.
It’s worth your time
This checklist requires an investment of time on your part, but going through each step will pay off for you. Use these tips to file a complete and accurate tax return.
This article was produced by the Quickbooks Resource Center and syndicated by MediaFeed.org.
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