Friday, February 5, 2016

Tips to make tax preparation easier, more secure

You may not have yet recovered from the holidays, but that's no concern to Uncle Sam. Tax preparation season has begun!
The good news is that, due to a local Washington, D.C. holiday, the tax filing deadline is April 18 rather than the traditional April 15, so you will have an extra three days. That doesn't mean that you should dawdle. In fact, there is a good incentive to get your act together earlier this tax season: fraud prevention.
Last year, the IRS acknowledged that criminals had accessed to steal or attempt to steal information on nearly 400,000 taxpayers. States are also on high alert after the filing of fraudulent returns, which last year prompted TurboTax to temporarily suspend e-filings. While the IRS announced several measures the agency says will prevent tax fraud, filing early may be your best bet to prevent crooks from trying to file a return in your name.
Another anti-fraud tip to remember: The IRS never initiates contact with taxpayers about their accounts through email, text messages or other social media. If you get an unsolicited email claiming to come from the IRS, do not open attachments or click on any links;forward the message to the IRS.
Whether you prepare your own returns or hire a professional, create a file called "2015 Taxes." In it, put last year's return, which will be your guide to what needs to be assembled. Be on the lookout for tax documents that are rolling in, including 1099s, W-2s and information from banks, investment companies and lenders. Tax documents should arrive by mid-February, though many forms are available online earlier. Gather your credit card summaries and review checking accounts for deductions, such as charitable donations and job-search costs.
You may be wondering if you need to hire a CPA. If you have a complicated financial life, it may be a good idea. For example, if you're self-employed, you may want someone who is familiar with Schedule C, who can advise on the best type of retirement plan to use, and who will let you know if you should file a Form 1099 to report any payments you made to others. If you had a lot of investment activity, sold property, have to file an estate tax return for someone else, or are subject to Alternative Minimum Tax, professional guidance will help minimize the tax consequences.
If this is the first year that you are hiring a tax preparer, it's best to contact to contact him or her now; otherwise, you may get shut out. To make sure that a preparer is legitimate, use the IRS database to check on credentials.
If you are going it alone and your income is $62,000 or less, the IRS provides free tax prep software called Free File. If you don't qualify, you are left with three main choices: Turbo Tax, H&R Block and Tax Act.
Most tax preparers that I spoke to say that Turbo Tax may be the best bet, even though it costs more than its competitors. They cite Turbo Tax's easier to use platform and the interface's ability to save time and reduce errors.
Whether you prepare your own returns or hire a pro, be sure to e-file, because the IRS says that the error rate for a paper return is about 20 percent, compared with an e-file return error rate of about 1 percent. And if you are due a refund, it will come faster if you e-file.