You might think that taxes are a necessary evil better left for professionals, but you’ll go far understanding the basics.
Business expenses. Body builders have written off baby oil. Never assume something can’t be deducted as a business expense!
Look over your tax returns. You may pay someone to prepare it, but the IRS will hold you legally responsible for everything on it.
E-Filing. Not only will you get your refund faster, but paper returns have a 20 percent error rate, compared with 1 percent for electronic returns.
Noncash donations. Don’t forget about that bag full of items you gave to Goodwill. They can add up at tax time! Make sure you get a receipt and note exactly what you donated.
Storing your tax returns. How long should you keep your old tax returns? At least three years. The IRS has the right to go back that far when it’s auditing past returns. Play it safe and keep them at least six.
Tax refunds. It’s tempting to blow your refund on a shopping spree, but don’t drop the dollars just yet. Before your spend your refund, think about where the money would really be best used.
- Pay off debt. Apply it to your mortgage principal, your credit card payment or student loans.
- Nail down any big-ticket items coming up like dental work, car repairs or college textbooks.
- Save money. Stash part of your refund in an emergency fund, CD or IRA.
- Add equity to your home. Tackle those repairs you’ve been meaning to make or do some landscaping.
- Treat yourself. After you’ve covered the basics, treat yourself to an exciting trip or something shiny and new.