One of the most frustrating things about taxes, other than having to pay them, is that the laws are constantly changing. Even if you earn a low income, you still have to pay close attention to all the news rules, regulations, penalties, deductions, and exemptions. It can be truly maddening. As April approaches, it’s important to know a few key points about ways to stay out of trouble, avoid paying too much, and figuring out how to make sense of the entire taxation challenge. Here are four constructive things you can do this year to make your financial life a bit simpler.
Avoiding an Audit
Don’t want to be audited? Follow a few simple guidelines and you’ll minimize the chance that your return will flag an automatic audit. First, file on time. It’s simple and easy to do, plus it costs you no more to file on time than to file after the deadline. Second, pay the entire amount of tax you own when you send in your return. If you can’t, ask for a payment arrangement. Never just assume that you’ll get a bill in the mail from the government. Stay ahead of the curve and either pay up or make an arrangement. Finally, hire a paid preparer. For about $50, you can get the peace of mind that comes with knowing everything was done correctly, sent to the right address, and properly calculated.
Selling a Life Insurance Policy
For various reasons, often the death of a spouse, people decide to sell their life insurance policies. This move can be a wise way to raise a substantial amount of money when you need it, or if you just decide that it’s no longer necessary to have the coverage. Making the most of your policy, and getting the most money for it, calls for using a calculator. Fortunately, there are online calculators that can show you whether you can sell your policy and what it might be worth at any given point in time. One thing to remember is that it’s essential to know the tax implications of the sale. That’s because each situation is different. Some proceeds are taxed as ordinary income, others are capital gains, and others are a combination of the two.
Standard Deductions Doubled
As of 2017, with the passage of TCJA (Tax Cuts and Jobs Act), the standard deduction doubled. Now it stands at $12,400 for single people and twice that, $24,800 for being married. Don’t forget, you can only reduce your taxable income by these amounts if you choose not to itemize your deductions. In other words, you can’t take both.
It’s still legal to file with a hard-copy paper form, but it’s to your advantage to use one of the many e-filing systems. Some services charge a small fee, but others don’t charge anything at all. Plus, the government has its own free e-filing system you can use. The huge advantage of the electronic method is that you get instant verification that the government received your paperwork, and if you have a refund coming, it usually arrives in your bank account within a few business days.