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5 Steps that Make Tax Season a Breeze

Ashley Feinstein, Contributing Writer

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Article Sponsored by: Temple U via Harmelin

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Filing your taxes can be stressful and confusing. The key to making it manageable is organization and planning. Below are five steps to confidently filing your taxes. The fifth step is the most important as it will make your life easier and less “taxing” in the years to come.

Step 1: Gather important information. In order to file your taxes, you will need to have some specific information handy. First and foremost, you will want to know your social security number as well as your spouse’s and anyone you plan to claim as a dependent. You will need your bank routing number where you wish to receive your refund, if applicable. This way, you can set up direct deposit and make it as easy as possible for the IRS to refund you.

Step 2: Compile your income information. Next, you will want to gather all information and documentation relating to your income. This is the basis of your tax bill. If you work for a company, you will receive a W-2 Wage and Tax Statement with all of your necessary wage income information. If you are an independent contractor, you will receive a 1099-MISC form from companies that pay you.

Your wages are not the only income that’s taxable. You will also be taxed on income you earn from interest on savings. Each of your accounts will have a 1099-INT form available with your annual interest income. If you own stock or mutual funds, you will also find a 1099-DIV form that will show the income you earned from dividends, or payout from companies that you receive as an investor.

Finally, selling a security will also affect your tax bill in the form of a realized gain or loss. When you lose money on an investment, this reduces your taxable income and therefore decreases your tax bill. When you make money on an investment, this increases your taxable income and therefore increases your tax bill. The gain or loss is the difference between the price you sold the investment and the price you bought it. If the investment increased in value, you realized a gain and if it decreased in value, you realized a loss. You can find this information on a 1099-B statement from your broker or brokerage firm. If you haven’t sold any investments, you haven’t realized any gains or losses. If an investment you own goes up in price and you haven’t sold it yet, that’s considered an unrealized gain and you don’t have to pay taxes on any unrealized gains or losses.

One way to minimize the taxes you pay on realized gains is to hold onto an investment for at least a year before selling it. If you buy and sell an investment in less than a year, you will be taxed at the same rate as your ordinary income. If you buy and sell an investment a year or more after buying it, you will then be taxed at the long-term capital gains rate which was 15 percent for 2015. This can significantly reduce your tax bill.

Step 3: Trim your tax bill. Once you have all of the necessary income information that determines your taxable income, you will then want to work to trim your tax bill so that you are not over-paying in taxes. This is where tax deductions come into play. Put simply, a tax deduction is just a reduction of your income that is able to be taxed.

Here are some items that are tax-deductible:
• Interest on your mortgage or mortgages (form 1098)
• Real estate taxes (form 1098)
• Qualified donations
• Interest on student loans
• Out-of-pocket medical expenses

There are many more tax deductible items that may apply to you and your life. If you are ever unsure, contact a tax professional or even do some online research to find more information. There are many tax-deductible items that often go overlooked!

There is a popular misconception that deductible expenses are essentially free. For example, self-employed people may take taxis from meeting to meeting more often because they know these types of expenses are tax-deductible. I recommend thinking of deductible expense items similarly to something that’s on sale. Yes, you are receiving a discount but if you weren’t going to spend on that item anyway, you aren’t saving money!

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