April 15 is right around the corner, which means one thing: taxes.
A tax aid site, UtahTaxHelp.org, released their top five tips to help tax payers maximize their return and minimize their payment.
1) Get all the deserved tax credits and deductions
Paul Legget, executive director of Community Action Partnership of Utah, said one in five Utah citizens fail to claim the earned income tax credit every year. This is a refundable tax credit for low- and medium-income individuals and couples, mostly those who have children. Legget said this could mean leaving more than $2000 unclaimed. He said many people are unaware that even if taxes are not owed this year, there are still claimable refunds.
“This money could make a big difference for a lot of Utah families. It would go directly into your pocket,” Legget said.
Jeffrey Cannon, a finance graduate from BYU from Tarzana, Calif., is a working certified public accountant and said he cannot emphasize this first tip enough.
“Making sure you take advantage of all deductions and credits is by far the most important,” Cannon said.
Cannon said in order to maximize refunds, it is crucial to be aware of all deductions and credits available. Many times individuals will neglect to claim deductions or credits that result in significant refunds. The earned income tax credit is a common credit not taken on individual income tax returns because taxpayers don’t know it’s available.
2) Search ways to file for free
Legget said the average person pays $211 to have a professional do their taxes when in fact there are numerous resources that will do them for free. Websites such as TurboTax and TaxACT are some of the examples of sites that offer professional assistance. Volunteer Income Tax Assistants (VITA) are also available in the Tanner Building.
“Many people don’t realize they can get it done for free. The volunteers go through the same certification process and they can save hundreds of their tax return dollars,” Legget said.
3) Avoid late payment penalties
Many people wait until the last minute to pay their chunk to the IRS. However, it is important not to procrastinate. Just like anything, rushing the tax preparation process increases the chance to make errors, which result in missing possible deductions.
“As much as you might dread doing your tax return, if you take the time to thoroughly complete your returns and take advantage of the deductions and credits available you might be pleasantly surprised at the amount of your refund,” Cannon said.
4) Save receipts
UtahTaxHelp.org suggests holding onto receipts that deal with vehicles, such as gas, parking, repairs, auto registration, medical expenses, charity donations and business expenses. They advise the self-employed or those with additional income outside of full-time jobs to keep track of business expenses as it may reduce self-employment income, resulting in lower tax rates.
Heath Armstrong an accounting major from Mapleton is a VITA lab partner-training director at BYU. Armstrong said keeping track or receipts, especially for students, is a wise choice.
“Keep very good documentation, especially of any class related expenses like text books. People don’t usually have an exact record and we take low ball amounts, which means people lose deductions,” Armstrong said.
5) Save refunds
The Community Action Partnership of Utah says a tax refund is “not a gift” from the IRS, it is a part of earned income. They suggest putting refunds directly into savings accounts and plan to save it for a rainy day such as a car repair or unexpected medical bill.
Greg McDonald, the regional volunteer coordinator for Salt Lake and Toelle Counties for VITA, said people don’t follow these simple tips and make mistakes because of lack of education. He said the biggest mistake tax payers make is they file as a single person and fail to claim members of their household. People commonly think they have to file separately from their spouse, which actually takes away some of their credits.
“I have been doing that for ten years and I wonder where these false ideas comes from. People get false information from friends and are losing benefits,” McDonald said.
He said the most common mistakes that BYU students make are that they don’t file with their spouse, and their parents erroneously claim them as a dependent. There is no financial penalty for being claimed by parents, but it may delay tax returns by an extra six weeks.
The Community Action Partnership of Utah and Cannon say taxes can be a headache, but in the end, taking the time and getting a full return will be worth it financially.
“A minute or two could be worth hundreds of dollars,” Cannon said.