1. Check out Schedule M
This is the new tax document that you’ll use to account for the Making Work Pay credit money you got last year in your paychecks. Thanks to revised payroll withholding tables used from April through December, most workers got an extra $400 each or up to $800 for married couples who file jointly. But in some cases, the amount might have been too much. To account for the early credit payouts and make sure they were correct, filers will have to complete the new Schedule M. Take a look at the form and do some rough calculations. That way you’ll find out whether you’re fine or whether you’ll lose some of the credit when you file your tax return.
2. Get ready for the arrival of records
When your W-2s, investment statements and other tax-related documents start coming in, create a collection point and put them there. It could be as simple as a large envelope. Remember, the IRS gets a copy of most of these, too, so figures on those statements are critical to ensuring your return sails through the system.
3. Track down Social Security numbers
Before the IRS will process any return, the agency must have your correct Social Security number, as well as your spouse’s, if you file jointly, and those of any dependents you claim. These numbers are crucial because so many transactions — income statements, savings account interest, retirement plan contributions — are keyed to them. The IRS also checks the identification numbers against any tax breaks you apply for, such as the Child Tax and Additional Child Tax credits, credits for educational expenses and the dependent care tax credit. So make sure everyone in your tax family has a valid Social Security number and that you have them written down correctly.
4. Find your forms
Last year, two-thirds of all taxpayers filed their returns electronically, meaning all the forms were provided in the tax software. The rest who filed the old-fashioned way will get a tax packet in January, but it never hurts to have backup forms in case you make a mistake. Plus, your tax situation may have changed, meaning you need material other than what’s in the IRS package, since it’s based on your past filing history. A few of the most common forms are available at post offices and libraries. Most of the rest can be downloaded from the Internet. Check out Bankrate’s tax forms library or the IRS’ Forms and Publications Web page.
5. Decide how you want to do your taxes
Gathering the appropriate tax forms goes hand in hand with how you plan to complete your return. Which preparation method fits your tax style? Are you a do-it-yourselfer or should you hire a pro? Do you prefer pen and paper or a computer? Now’s the time to decide. By starting early, you have plenty of time to gather filing paperwork yourself, pick the perfect tax preparer or find the tax preparation software that fits your needs.
6. Consider electronic filing
If you decide to use your computer to calculate your taxes, consider taking the next step and file the forms electronically. E-filed returns are processed in about half the time of paper ones, according to the IRS. Plus, e-filing catches math problems and provides confirmation your return has been received. You might even be able to e-file for free via Free File, a joint venture of the tax software industry and the federal government. This filing season, taxpayers with adjusted gross income of $57,000 or less in 2009 will be able to file at no cost via the IRS program when it kicks off Jan. 15.
7. Use direct deposit
Regardless of whether you file electronically or the old-fashioned paper way, this year have your refund check directly deposited into your bank account. Again this filing season, you can have your refund sent directly to up to three accounts. You’ll just need to file Form 8888. Whether you have your tax cash deposited in one, two or three accounts, there’s one big advantage: You won’t have to worry about the check being lost in the mail or returned to the IRS because of a bad address. Even better, you’ll have access to your refund sooner. Just be sure to put the correct routing and account numbers on the form.
8. Don’t panic
Tax filing makes everyone a little nervous, but when you start early, you have time to get the answers and make sure you’re taking full advantage of every tax break for which you’re eligible. Check Bankrate’s tax pages throughout the filing season for more tips, stories and explanations of tax laws and how to make the most of them. You also can visit the IRS Web site or call its TeleTax service at (800) 829-4477 to get recorded information on more than 140 tax topics.
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