With tax-filing season well underway, you might feel like you're getting buried in the details, especially if you're doing your own taxes. In addition to all the information you need to gather and file properly, there are new rules to be aware of, too.
Even if you think you're on top of your 2015 taxes, it's always a good idea to review the basics and get the updates. Click through for 31 practical tips to keep in mind when filing your taxes this year.
1. Find Out If You Need to File
First, if you need help determining whether you're required to file a federal income tax return this year, you can use the IRS's online Interactive Tax Assistant. You need to answer a few basic questions about your filing status, gross income and whether you had federal income tax withheld. The first question asks you which tax year you're asking about. Make sure you select 2015.
2. Gather Social Security Numbers
The first bit of information you need to prepare any tax return is your Social Security number, the nine-digit piece of information that follows you around for your whole life. "Make sure you have the Social Security numbers for yourself, spouse and all dependents. Also, some credits, [such as the Child and Dependent Care Credit], require SSNs or other ID numbers in order to claim," said Kay Bell, tax journalist at the blog Don't Mess With Taxes.
3. Determine Your Filing Status
Your filing status is based on what your marital status was on Dec. 31, 2015, and it applies to all of tax year 2015. There are five possibilities:
- Married filing jointly
- Married filing separately
- Head of household
- Qualifying widow(er) with dependent child
The laws of the state where you lived on Dec. 31, 2015, determine whether you were married or legally separated. If you legitimately fit into more than one category, pick the one that requires you to pay the least amount of taxes.
4. Review Your 2014 Returns
Pull out your federal and state tax returns from the previous year. The information will help you start your 2015 tax return because some of your entries will be the same. Other entries will prompt you for missing information or forms you need to collect.
Also, you might find you need to make changes if you had important life events that happened in 2015. That includes things like getting married, divorced, having a child, going to school or changing jobs.
5. Gather Your Documents
For income information, you'll need the forms you received from your employer and banks, which might include some of the following:
- Form W-2 (wages)
- 1099-INT (interest)
- 1099-DIV (dividends)
- 1099-B (investment sales)
- Combined 1099 (brokerage combined tax statement)
- 1099-MISC (independent contractor work, royalties)
- 1099-R (retirement distributions)
- K-1 (MLP, Partnership or S-Corp share of income)
- SSA-1099 (Social Security benefits)
- 1099-G (unemployment benefits and state tax returns)
- W-2G (gambling winnings)
- 1099-C (forgiven debt).
Next, if you had any adjustments to income, you might need any of the following: Form 1098-E (student loan interest); 5498 (IRA contributions); 5498-SA (HSA/MSA contributions); and 1098-T (tuition).
Finally, if you itemize your deductions or receive tax credits, you might need forms such as: 1098 (mortgage interest); 1099-LTC (long-term care benefits); 1099-SA (HSA/MSA distribution); 1095-A (insurance marketplace statement); 1095-B (health coverage); 1095-C (employer-provided insurance coverage). You'll also need any personal receipts for expenses such as charitable contributions, unreimbursed employer business expenses, medical expenses and moving expenses.
6. Know Which Deduction to Take
If you're not sure whether to itemize your deductions, there's a relatively simply way to determine the best choice for your situation. "If you have enough itemized deductions to exceed the standard deduction, itemize; if you don’t, take the standard deduction," said accountant Eric J. Nisall, founder of AccountLancer. "If you’re not sure, put everything in and let your tax program of choice tell you what to do."
If you don't itemize, you're in the majority. Only about 31 percent of filers itemized their deductions, according to IRS statistics.
7. Deduct Your Medical Expenses
If you itemize deductions, you might be able to deduct certain medical expenses for the costs of diagnosis, cure, mitigation, treatment and disease prevention. These costs include payments you made in 2015 for medical services provided by physicians, surgeons, dentists and other medical practitioners, plus equipment, supplies and diagnostic devices. In addition, you can deduct certain insurance premiums, travel costs, long-term care insurance premiums and long-term care services.
However, there is a threshold you must meet before you can deduct your expenses, and then you can deduct only the amount above that threshold. For 2015, you can deduct on Schedule A (Form 1040) only the dollar amount that is more than 10 percent of your adjusted gross income. If you were born before Jan. 2, 1951, it's 7.5 percent of your adjusted gross income.
Unfortunately, you can't deduct the costs of the vacation you took to the Bahamas for rest and relaxation.
8. Deduct Travel for Medical Treatment
If you drove in 2015 to get to a hospital, doctor's or dentist's office for the purpose of medical treatment, the cost of getting to and from the facility or office is deductible at 23 cents per mile, plus the costs of your tolls and parking.
Include the total transportation costs in your medical expense deductions. You can only claim these costs if you itemize your deductions and meet the minimum threshold for total medical expenses. Keep good records of this type of travel to differentiate it from the driving you do for work, errands or leisure.
9. Deduct Your Mortgage Interest
If you paid interest on your mortgage, the amount of interest might be deductible if it's more than $600 and you itemize your deductions. You might also be able to deduct interest on a second mortgage, a home equity line of credit, a home equity loan or a vacation home. Make sure you get Form 1098, a mortgage interest statement, from your lender.
10. Look for New Mortgage Documents
There were recent changes to mortgage financing disclosure laws, so it's important to know what documents to look for now. "If your loan was originated after Oct. 3, 2015, instead of a final settlement statement, also known as a HUD-1, you will instead get a closing disclosure," said Casey Fleming, writer at LoanGuide.com and author of "The Loan Guide: How to Get the Best Possible Mortgage.”
"Within 30 days after closing your refinance or home purchase, you will then get a final closing statement, where any last-minute changes in costs — such as recording or prepaid finance charges — are disclosed," Fleming added. This is the form you'll use for filing purposes.
11. Properly Deduct Charitable Donations
If you want to claim a deduction for charitable contributions, you must itemize your deductions, said Nisall. "Any single cash donation over $250 or non-cash donation in excess of $500 should have a receipt in your records — and it would be ideal to have a receipt for any donation," he added.
However, not all donations are deductible. For example, you can't deduct the entire amount of your donation if you received a benefit like a fancy dinner at a fundraiser. You have to subtract the fair market value of the meal from the amount of your donation.
12. Know How to Handle Political Donations
Perhaps you wanted to help your favorite candidate reach the White House this year by giving money to his or her campaign in 2015. However, it doesn't count as a charitable contribution. The same rule applies to political parties or groups — they are considered "nonqualified organizations," which means you can't deduct the amount of your donation.
13. Check Your Volunteer Driving Expenses
If you volunteered to a charitable organization, you can't deduct the value of your time. However, you might be able to deduct the cost of driving if you itemize your deductions.
"Miles you travel on behalf of charity are deductible at 14 cents per mile, plus tolls and parking, for 2015," said Gail Rosen, a certified public accountant based in Martinsville, N.J. Make sure you keep good records of your mileage for this travel to differentiate it from your personal or work travel.
14. Gather Health Insurance Tax Documents
You might receive a new Form 1095 for the medical care coverage that you had or was offered to you. This is yet another important document to keep track of for tax-filing purposes.
"You and each member of your family must have qualifying health insurance coverage for each month of the year, or qualify for an exemption from the coverage requirement — or make an individual shared responsibility payment when you file," said Bell. "Filers who get coverage from the marketplace will need the Affordable Care Act 1095 forms to make sure they file properly. If you have coverage through your workplace, you'll simply check a box on the return."
15. Find Out If You Qualify for EITC
If you worked in 2015 but had low to moderate income, you might qualify for the Earned Income Tax Credit. You don't need to itemize your deductions to receive this because a tax credit reduces the amount of tax you have to pay. You might even get a refund. The requirements are strict, so the IRS provides an online EITC Assistant to help you figure out if you qualify for this benefit.
16. Report Your Unemployment Income
You might think because you weren't employed in 2015 that you don't owe any income taxes. However, if you received unemployment compensation, you do have to declare it as wages you received and pay any taxes you owe. Don't ignore that 1099-G you got. "The Internal Revenue Service got a copy, too," said Bell.
17. Check Your Job Search Expenses
Were you unemployed or looking for a new job in your current profession in 2015? "You should be aware of the income tax deduction that may be available with respect to job search costs," said Rosen. "Qualifying expenses are deductible even if they do not result in a new job being offered or accepted," she added.
Job search expenses might include fees you paid for online search services, outplacement agencies or travel to interviews. The 2015 standard mileage rate for auto expenses is 57.5 cents per mile.
18. Calculate Business Auto Expenses
If you used your car for business purposes, the costs might be deductible. "You have the choice of deducting expenses either using the standard mileage rate of 57.5 cents per mile for 2015, plus business tolls and parking, or actual method," Rosen said. "Try both methods for maximizing your deduction," she added.
Make sure you kept meticulous records of business travel. Don't claim mileage or expenses for personal trips you made or driving to work for an employer.
19. See If You Qualify for an Adoption Credit
If you adopted a child in 2015, you might be eligible for a tax credit for your qualified adoption expenses. There are strict requirements for what those expenses include. For example, you are not eligible for the credit if you adopted your spouse's child.
If you adopted a child with special needs, you might qualify for the credit even if you didn't incur any qualified adoption expenses. The amount of the credit is reduced if your modified adjusted gross income is between $201,010 and $241,010, and you won't receive the credit if it's above $241,010.
The maximum amount of the credit for 2015 is $13,400 per child. Another benefit of the adoption credit is that if your employer provided you with any financial assistance, the amount is excluded from your taxable income.
20. Don't Forget Lottery and Contest Winnings
If you won a big jackpot, Uncle Sam took a big cut before you got your hands on it. If you won contests or prizes, the company might report your winnings to the IRS. Even if they didn't, you're required to report it as income.
21. Report Your Gambling Wins and Losses
If you struck it rich in Vegas last year, you might have to report it on your tax return because your gambling winnings might be taxable income. If you weren't so lucky, your gambling losses might be deductible if you itemize deductions instead of taking the standard deduction. Gambling transactions include betting on table games such as poker, horse racing and even bingo.
However, you can't take the amount of your gambling winnings, subtract your losses and claim the net amount as your gambling winnings. You have to report the entire amount of your winnings as income. Your losses are reported as an itemized deduction, up to the amount of your winnings. The IRS requires you to keep accurate records of your winnings and losses.
22. Properly Deduct for Uniforms
You might be able to deduct the costs of purchase and upkeep of certain uniforms if your employer specifically requires that you wear clothing items that aren't suitable for wearing after hours as your regular clothing.
Employees who might be able to claim a deduction for their uniform costs are delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes and transportation workers (air, rail, bus, etc.).
Protective clothing or safety items might be deductible for employees such as carpenters, cement workers, chemical workers, electricians, fishing boat crew members, machinists, oil field workers, pipe fitters, steamfitters and truck drivers. Special rules apply to military uniforms.
23. Know What Expenses You Can't Deduct
If you itemize deductions, make sure the items you claim are actually deductible. Here's a list of some nondeductible expenses:
- Adoption expenses (although you might be eligible for an adoption credit)
- Broker's commissions
- Burial or funeral expenses, including the cost of a cemetery lot
- Club dues
- Fees and licenses, such as car licenses, marriage licenses and dog tags
- Fines and penalties, such as parking tickets
- Health spa expenses
- Hobby losses (although certain hobby expenses might be deductible)
- Home repairs, insurance and rent
- Home security system
- Illegal bribes and kickbacks
- Losses from the sale of your home, furniture, personal car, etc.
- Lost or misplaced cash or property
- Lunches with co-workers
- Meals while working late
- Personal, living or family expenses
- Professional accreditation fees
- Professional reputation, expenses to improve
24. Remember Your State Income Taxes
In most states, you have to file a separate income tax return. However, if you live in one of these seven states, you're spared: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. States that do not collect income tax always manage to find it elsewhere — for example, you often pay higher sales taxes.
If you live in New Hampshire, you don't have to pay state income tax, but you might owe capital gains tax. Tennessee imposes no state income tax, but if you received interest or dividend income, you might have to file and pay taxes.
25. Don't Make Simple Mistakes
It's so easy to use the wrong dollar amount on your return, whether you prepare the tax return yourself, use a human preparer or use an online service. "Double, then triple-check your input figures," said Nisall. "Making an input error can mean getting back too much and having to pay it back later — sometimes with interest and penalties — or not getting back what you deserve — sometimes losing that money permanently if you or the IRS doesn’t catch and fix it," he explained.
Take a deep breath and step back for a moment when you finish your returns. Look at the bottom-line numbers. "If anything looks off — either owing too much or receiving too large of a refund, or if you simply have no clue what you are doing — hire a qualified tax preparer," said Nisall.
26. Check Your Tax Preparer's Work
If you don't want to prepare your own tax return or use the available software or electronic methods, you can use the services of an accountant or other human tax preparer. But you don't get off the hook if they make mistakes or try to claim excessive deductions for you.
"It is your tax return, and even though someone else prepared it, you are responsible," Rosen said. "Do not take a refund that you are not entitled to or you can likely owe it back one day with interest plus penalties."
In addition, a tax preparer should sign their name on your return. "If your tax preparer will not sign their name, you should walk away," Rosen said. "That means they are hiding from something, and it is a sign you need to worry. Make sure, in addition, that the tax preparer you go to has a good reputation. You do not want to be audited because you had a questionable tax preparer."
27. Don't Fall for Tax Scams
Unscrupulous people might call you, pretending they are IRS employees and demanding that you pay taxes you owe. Do not give them any personal information. Instead, hang up the phone immediately.
The IRS will never:
- Call to demand immediate payment, nor will the IRS call about taxes owed without first having mailed you a bill
- Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe
- Require you to use a specific payment method for your taxes, such as a prepaid debit card
- Ask for credit or debit card numbers over the phone
- Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying
28. Report All Your Income
When it comes to reporting your income, be honest. "Report every penny of income," said Nisall. "It doesn’t matter that a tax form wasn’t issued. If you earned money, either income from a bank account or working for cash on the side, it’s all taxable income."
"Don't overlook nonwage income," Bell said. "You might, or might not, get an official tax statement for this. Regardless, it's taxable. This includes tips you receive as part of your job. Yes, these gratuities are taxable income."
29. File Electronically or Mail a Paper Return
It's your choice whether you want to file online or submit all the paper forms to the IRS. "Many clients tell me they do not want to file electronically since they do not want their information going over the internet," said Rosen.
"Paper returns are 'touched' by IRS employees, so there is a security issue there," she said. "In addition, you statistically get your refund much quicker filing electronically, plus you have less chance of an error rate."
30. File Your Federal Tax Return for Free
The IRS offers Free File to file your federal taxes without paying any fees. The version you can use depends on the amount of your adjusted gross income.
If it's $62,000 or less, you can use the available free filing software. If your adjusted gross income is higher, the IRS provides Free File fillable forms that are the electronic version of its paper forms.
31. Know the Deadline to File
Usually, your income tax return has to be postmarked on April 15. However, the due date for your 2015 return is April 18, 2016, because of the Emancipation Day holiday in the District of Columbia, even if you're not a District of Columbia resident.
You also get an extra day if you live in Maine or Massachusetts. Your deadline to file is April 19, 2016, due to the Patriots' Day holiday.