Don’t Mess With Taxes
The United States has an extremely complicated tax code. I do not understand it. You do not understand it. Most of the people who wrote it and those who enforce it do not understand it. It is designed to make sure that very poor people pay very little and very rich people pay even less.
No one enjoys paying taxes, but the consequences of not paying are far too high, so the wise among us pay. Still, there are some things you can do to make the income tax experience as painless as possible. That means spending as little money as possible and as little time as possible.
Just like the tax code, advice on taxes has to be complicated or it is illegal. Since I don’t want to commit a crime, I will only state general principles and tell you to pay at least $100 to someone who really knows taxes, like a CPA, or a lawyer to get legal tax advice.
The Budget Doctor’s General Principles for Taxes (Without Tax Advice):
1. Do your taxes right away. If you owe, you may need time to arrange for the money. If the IRS owes you, you want to get your cash as soon as possible. You are supposed to have all tax related information sent to you by the end of January, so why wait? Of course if you owe you should not actually file until April 15.
2. Use software and do your own taxes. If you trust the on line services with all your financial information you may be able to do your taxes for free. Go to www.IRS.gov for information concerning online tax preparers. If you are not trusting, buy one of the brand-name packages anywhere they sell software. If you get into the program and find that your taxes are too complicated, you can still hire a CPA since it is early.
3. Don't use the "simplified" forms. Yes, they are simpler but that is because they don’t give you opportunities for many ways to reduce your taxes. Use the 1040 and just fill in the appropriate information. By the way, the Post Office will still not be providing forms this year. Try the library if you aren’t using software.
4. File electronically unless it costs you money. If you can file free and save the stamp, do it. You may get your refund sooner. If you have to pay to file, mail it.
5. Adjust your withholding unless you had a refund of $25 or less. As soon as you know that you had too much or too little withheld from your check, make the adjustment. Go to your payroll office and fill out a new withholding form, if you are getting back $260 and get paid every two weeks, you are having $10 too much withheld. Increase your take home pay by $9 and save it for something special.
6. Do not take a tax refund anticipation loan. These loans are advertised as giving you your refund immediately. The interest rates are high and there are risks. Just wait the week or two it takes and get all your refund.
If you follow these principles, pay every cent you owe without fudging on the numbers, and ask a professional tax advisor for advice, we may both stay out of jail.