There are a number of mandatory tasks that recur each year, and filing our taxes is one of them. With so many reporting issues and options for preparation, filing your taxes has become a daunting task. We wanted to make sure that you are prepared, and are aware of the important information when it comes to tax preparation. Below is an overview of the deadlines, filing, documents, and much more so you will be prepared to file your taxes this year!
Deadlines and Extensions:
For the 2014 tax year, the Internal Revenue Service
(IRS) began accepting returns on January 20, 2015. Individual tax returns are due no later than April 15, 2015, or October 15, 2015 if an Automatic Extension (Form 4868) is filed by the April 15th deadline. However, note that the six-month automatic extension is only for the filing of the return; the payment of the tax is still due by April 15, 2015, or penalties and interest will be assessed.
April 15, 2015 is also the last day to make contributions to traditional IRAs, Roth IRAs, and Health Savings Accounts for the 2014 tax year. These contributions can potentially be counted as deductions on your 2014 individual income tax return depending on your tax situation and the type of contribution made. You may want to consider filing your taxes as soon as possible though. Reasons include receiving your refund faster, reducing your chances of identity theft, and finding potential issues before it is too late.
Preparation and Filing: As a young professional with just a W-2 and student loan interest deductions, it is quite possible to prepare your own taxes using a free tax preparation online service. These completely free versions will not include checks and balances to determine if there are other credits or deductions that you may be missing. However, if you have done your homework and are confident with your ability to prepare your tax return, then a free version will do just fine. A step-up would be to utilize a paid program that will walk you through an interview to determine what you may qualify for and will calculate eligible deductions. For really complex or difficult returns, it is always best to seek the help of a Certified Public Accountant (CPA) to prepare and file your taxes. CPA's are a little more costly than "do-it-yourself" programs, but will be able to provide you with customized information on lessening your tax liability for the current year, help you plan for future tax savings, and represent you in case of an IRS audit.
All of these options provide the electronic filing of your return, which is the easiest way to file your taxes. If preparing your own taxes, online programs provide a free federal e-file service. To file your state return, most states, including Connecticut, allow e-filing of the state return on their websites. Paid programs include both federal and state e-filing options. When using a tax professional, they most likely e-file your returns with your authorization unless you sign an opt-out form to paper file what they have prepared. With e-filing, your return is processed quicker, is more convenient and secure than paper filing, and you will be notified within 24 hours of any errors on the return that need to be corrected.
Documents: When preparing your own taxes or utilizing a tax professional, you will want to ensure your tax documents are well organized. Receipts for expenses and mileage driven can been kept in Excel to assist with totaling amounts. The
documents you should have on hand when filing your return are as follows:
- 1099s (for interest, dividends, sales of securities, and miscellaneous income)
- 1098s (for mortgage interest, student loan interest, and tuition paid)
- Amounts of real estate, personal property, and state income and sales taxes paid and the dates they were paid
- Charitable contributions made (cash and non-cash donations)
- Receipts, or a summary total, of unreimbursed mileage and work related expenses
- Additional educational expenses paid
- A copy of your prior year return
All tax return back-up, including the receipts entered into an Excel or QuickBooks files, as well as a copy of the filed return should be kept for seven years.
Deductions and Credits: The most common deductions and credits that young professionals may be eligible for are as follows:
Student loan interest deduction: If you receive a 1098-E you may be eligible to deduct interest you paid on student loans. The amount you can deduct is the lesser of $2,500 or the amount of interest you actually paid and this deduction can be limited if your Modified Adjusted Gross Income exceeds certain thresholds. Refer to IRS Topic 456 or Publication 970 for additional information.
Tuition and fees deduction or Education credits: You may be able to deduct qualified tuition and related expenses as a tuition and fees deduction or either an American opportunity or lifetime learning tax credit. Refer to IRS Topic 457 or Publication 970 for additional information.
Itemized deductions over the standard deduction: The itemized deduction can be used instead of the standard deduction if itemized deductions total more than $6,200 (single) or $12,400 (married filing jointly) in 2014. Itemized deductions that are most prevalent for young professionals to take include state income taxes (usually paid through your W-2 wages), interest and real estate taxes paid on your main home, personal property taxes paid on your vehicle, and charitable contributions. Refer to IRS Topic 500 section or the instructions to Schedule A (Form 1040) for additional information.
Earned Income Credit: The Earned Income Tax Credit benefits working individuals who have low to moderate income, whether or not you have children. If you meet age, qualifying child, and income limitations, you may be able to claim this credit, which is a direct reduction of the taxes you owe. Refer to the EITC Home Page at www.irs.gov for more information.
Any accounting, business, or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If you have specific questions regarding tax related matters, please visit www.irs.gov or consult with a tax professional.
Thank you Mindyleigh Vail for writing this blog for us! Mindy is a CPA, and is a Supervisor at Nicola, Yester & Company, P.C. She provides income taxation and accounting services to small businesses and individuals.
Comment below with your questions on how to file taxes. We will be sure to put you in contact with someone that can help!