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Filing taxes is a necessary evil that comes around once every year. It is a process that most people scramble their way around two days before the due date, and then promptly forget about until the next due date rolls around. However, taxes continue to be incurred with each dollar earned, so pulling the ostrich act is not going to help you when tax dates roll around. What can you do to reduce your liabilities or the monetary pinch when you finally have to pay up? 1. Keep track of your income and expenses. Documents you will need for this purpose are: a. A detailed ledger, for personal reference b. Notes on your checkbook. Personally, I maintain notes in my checkbook - on the rare occasions when it is used - as well as in my ledger. c. Invoices and receipts, as proof of expense. d. Pay stubs from insurance premiums, 401k investments, union dues and such regular unavoidable expenses e. Forms W2 and 1099, form K-1 for business partnerships, credit card receipts f. All documents pertaining to home purchase 2. Know what items are eligible for itemized deductions. If a higher insurance premium can shift you into a lower tax bracket, definitely go for it. Some examples of items eligible for deduction as of 2009 are: a. Medical expenses above 7.5% of total income b. Interest on home loans or equity loans up to a certain sum c. Donations to charity d. Money lost due to accident, casualty or theft e. Gambling losses, maximum equal to gambling income f. State and local taxes(deductible from federal tax return), with the exception of excise duties, fines and penalties. 3. Set aside a sum every month for your taxes, and refuse to touch it except in case of emergencies. 4. Limit unnecessary expense and credit card debt - credit card interest is usually a complete wastage of money. Put off buying non-essentials until you have saved up enough, instead of buying on credit and risking interest. This will ensure that you are not knee-deep in debt when April comes along - or at least, that you credit cards are not maxed out. 5. File quarterly returns if you are self-employed or a business owner. This ensures that you have an estimate of the total tax amount due. Maintain all these records for three years, and keep copies of all the tax returns you have paid indefinitely. Apart from the sum of money involved, one of the main reasons people flinch from paying their income taxes is the complexity of the calculations involved. Thankfully, filing taxes online ensures that elementary mistakes in calculation can be avoided, and several tax filing tools are also available to make the process convenient. With electronic fund transfers, trips to the bank are a thing of the past, and the IRS can send your refund amount in 7 to 10 days. So find out which IRS form will give you the best refund -1040a or 1040 offer greater refunds than 1040ez for students and parents - and apply accordingly.
Learn more about Tax Return Calculators and Federal Tax Refunds.
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