Tax filing season is coming to a close, and if you haven’t filed yet, it’s most likely because you still have questions or fear you may owe. We want to help.
Tax filing season is coming to a close, and if you haven’t filed yet, it’s most likely because you still have questions or fear you may owe. We want to help. Tax preparer Nathan Gray, of Brooklyn-based Gray Tax, sat down with ESSENCE to discuss the most common pitfalls many people face come tax season and the biggest dos, don’ts and misconceptions. Get your pen and paper out, because you’re going to want to take notes. Read on…
The W4 Worksheet Can Be A Common Pitfall
The tax forms your fill out at work, could be the reason you owe money or aren’t getting any back. “You know when you first get that job and you go into HR and they say, ‘fill this form out, put your name and your exemptions?’ ask Gray. ‘You're looking at the worksheet and it says, "if you're this, put 1, and this, put 1, and if you're this, put 1, and by the time you're finished with the worksheet, you're somewhere around four, five, six, or even seven exemptions in some cases. Then at the bottom of that worksheet it says, ‘put in your allowances,’ and, before you know it, you're single claiming seven allowances. That’s a big pitfall right there.” But, just putting in zero may not be the solution either. Gray says it’s complicated. “The worksheet, yes, can be misleading and I would prefer to just go straight to that number of allowances that you're claiming and just put in a number that better fits,” he says. For example, says Gray, if a single woman who lives at home with her mom and three other family members, completes the worksheets and puts down five people as “number of people in household,” she’s claiming 5 exemptions, even though she’s going to be filing as single. “Now, what happens is throughout the year they're not taking enough taxes away from her paycheck, so at when it comes tax filing time, the preparer says, ‘You claimed five exemptions. Where are the other four?’ So basically throughout the year they took fewer taxes from you because you're picking the other four individuals up at the end of the year, but technically you’re not. It’s very misleading.” In a situation like this one, Gray says the woman would most likely own money. “Lower your exemptions,” he adds. “Think about your household. Think about whom you're claiming. That's the number of exemptions that you should be putting on the W4, nothing else.”
It’s Not Really About the Refund: The Goal Is Not to Owe
While those hefty income tax refund checks can be a nice financial boost this time of year, the real goal isn’t really about the money. “I would definitely say that the number one goal is not to owe,” says Gray, who insists being as honest as possible about your allowances is the best way to file correctly and not get into trouble later.
Pre-Tax Deductions Help You Get More Money Back During Return Season
Pre-tax deductions can help give your tax return a boost. “For example, if your job is offering a 401k, that money comes out pre-tax which lowers your actual income,” says Gray. “That's a good idea. The medical insurance, most of the time that's pre-tax. That's a good idea if your employer offers that. Anything pre-tax that you can get to lower your income is a good idea.”
Married, Filing Jointly Is The Best Tax Position To Be In
Yes, contrary to common belief, it’s true, says Gray. Why? Because you’re getting more tax breaks. “It's great because your standard deductions are higher,” he says. “The government allows you a standard deduction. So let's say that you're making $20,000, the government will automatically say, ‘okay on your $20,000 we're automatically going to take off $6200 and tax you on the rest,’ for example.” Standard deductions are higher for married couples who file jointly. “Now the opposite of that would be married filing separately,” says Gray. “That is the worst situation you ever want to be placed in.” In this case, you don't receive any credits. “If you're married filing separately and you're within that range to receive earned income credit or any general credits on your tax return you will not receive them,” Gray adds.
The April 15th Deadline Matters
Gray says the biggest mistake you can make is not filing your taxes by the April 15th deadline, even if you’re going to owe money. “If you make the deadline, at that point now the penalties and interest won't occur,” he adds.
If You’re Going To Owe Money, Talk To The Government
For those who find themselves owing money back, it’s important to get on the phone with the IRS as soon as possible, Gray insists. “The government is very user friendly,” he says. “They will allow you to stretch it out as ... I'm not going to say as long as possible, but within a good reason.”
The Answers To Your Questions Aren’t Hard to Find
If you think you need a tax expert to file your return with ease, you’re wrong. If you have questions, Gray says, finding the answers is simple. “Just go onto the IRS website and put your question in the search box,” he adds. “It's just that simple. Or, even your local tax office. Just walk in, ask a question to the person sitting behind the desk. It's free!”
It’s Okay To Talk With Your Friends About Your Tax Situation
While no two returns are the same, speaking with others in similar tax filing situations could be beneficial to understanding whether or not you’re optimizing your return. “Maybe your friend knows something that you don't,” says Gray. But, beware of assuming your refunds have to match. The intricacies of your tax returns could be unique. “Even though they work at the same job and make the same salary, [sometimes] the situations are totally different,” Gray cautions. “A lot of people tend to compare someone else's return to their own, but that's not the right way to go about it.” Put simply: Seek guidance and advice from friends, but don’t expect your outcomes to be identical.