The midnight rush to get your taxes filed by April 15th is going to be heavier than usual this year, as up to 25% of taxpayers are estimated to wait until the final two weeks to take care of this annual headache.
But according to Yahoo!'s Farnoosh Torabi, host of Financially Fit and author of Psych Yourself Rich, taking advantage of a few simple tips and "investing in professional assistance" can more than pay for itself. For this installment of Investing 101, we outline five last minute tax tips that are frequently overlooked but can make the difference between getting a refund and writing a check.
1) Keep Records for All Charitable Activity
Writing a check to the Red Cross may be "an obvious deduction" but Torabi says there are lots of quirky costs involved in giving that aren't so clear cut. For example, she says be sure to keep track of things like "the mileage you use driving from charity to charity" or the cost of the "the ingredients you purchased" to make meals for the local soup kitchen. The point is, it's not just about giving money when it comes to making this deduction work for you, it's also about first rate record keeping.
2) Avoid Obvious Audit Red Flags
While Torabi says under-reported income is one of the most common traps tax filers fall into, there are others. For example, she says "the IRS actually has an equation to kind of base you against the average charitable deduction in your tax bracket."
So if you earn $50,000 to $100,000 annually and claim to give $20,000 a year to charity, you can expect an audit since the "average contribution" in this income bracket is just $2600. In addition, she says one of the most abused and misunderstood deductions surrounds writing off the costs of a home office, pointing out that the IRS requires the space to be used exclusively and solely for business purposes. "If you have an office but also use it as a guest room or exercise room, you can only measure the space where the desk is."
3) Pay for Professional Tax Assistance
Given the amount of money at stake, Torabi says the average cost of just $246 for an accountant to help with an itemized return is "totally worth it." The same goes for some cheap software programs that cost as little as $50. However, she says if you own a business, actively trade stocks, or earn freelance income, the need for a professional eyes to look over your returns is even greater.
4) e-Filing Saves Time, Money and Headaches
If you're lucky enough to get one, everyone wants their tax refund as fast as possible, and Torabi says there's no better way to keep things moving quickly than to file electronically. In addition, she points out that it is also easier to do than traditional postage and clumpy envelopes, but even more so, can keep the tax man from coming after you. "The IRS says when you e-file you have a much lower chance of hearing from them down the road," she says.
5) Running Behind? Ask for an Extension
If April 15th is just coming too fast, Torabi says filing for a 6-month extension is not only easy, it's automatic. And compared to simply blowing off the deadline, this simple form requires very little be done in order to kick your deadline all the way to mid-October from mid-April. The only caveat, she says, is if you file for an extension you need to estimate whether or not you will owe money, because if you do, you still have to pay by April 15th.