Taxes » 5 NEAT Tax Tips

1. Plan Ahead

When it comes to taxes, the closer you get to that April deadline, the less likely you are to take the time and care to do the job right. If you let yourself get stressed and rushed, you'll end up in survival mode, just trying to make it through another tax year. To stay organized all year long and focused on getting the biggest return possible at tax time, decide early on what you will need to keep for your return.

Examples of documents to save are:

• Tax returns from past years
• Credit card statements
• Investment statements
• Pay stubs
• Travel expenses
• Home improvement expenses
• Child care and tuition expenses

Of course, by scanning these documents and saving them digitally, you eliminate the need to keep them around until tax time -- since the IRS accepts digital copies of receipts. (download a PDF of IRS Revenue Procedure 97-22 here)

2. To itemize or not to itemize?

Deductions reduce your taxable income. And less income means a smaller tax bill. So, what's the best way to reach the smallest possible taxable income level? It depends on your personal circumstances.

For 2007 returns, the standard deductions are: $5,350 for single filers or married couples filing separately, $7,850 for head of household filers, and $10,700 for married couples filing jointly.

Remember, you always want to use the deduction method that gives you the biggest tax advantage – so depending on your situation, the standard deduction may be a better option. But individuals who spend a lot on medical care, mortgage interest, state and local taxes, charitable contributions or a variety of miscellaneous items generally are better off itemizing. Even purchases might help out some filers at tax time this year, thanks to the deduction for state sales taxes paid. When all of these expenditures exceed the standard deduction, you'll save on your taxes by filling out Schedule A along with your 1040.

3. Schedule C-EZ for Small Business Owners

Want to save time and trouble when filing taxes for your small business? You may be eligible to use the abbreviated Schedule C-EZ instead of the longer Schedule C when reporting business income and expenses on your 2007 Form 1040 federal income tax return. Schedule C-EZ, Net Profit from Business (Sole Proprietorship), is the simplified version of Schedule C, Profit or Loss from Business (Sole Proprietorship). The maximum deductible business expense threshold for filing Schedule C-EZ is $5,000.

Using Schedule C-EZ can save time and reduce paperwork burden for eligible businesses. More information about Schedule C-EZ and reporting net profit for sole proprietorships can be found on the IRS Web site (http://www.irs.gov/), or download Publication 334, Tax Guide for Small Business
 

4. File your Tax Return Electronically

There are plenty of reasons to e-file rather than to submit a paper 1040 for your federal tax return. The first is accuracy: the IRS reports the error rate on paper returns is somewhere around 20%. – while the e-filed return is less than 1%. What’s more, using tax prep software in conjunction with e-filing allows you to keep the entire process in a digital, electronic format. (And NEAT Receipts allows you to export data directly to TurboTax!)

Another compelling reason to file electronically is security. The IRS launched the e-file program in 1986. 21 years and 700 million returns later, they still haven’t had a single security breach.

5. Paperwork: should it stay or should it go?

When it comes to keeping records for tax time, it is all too easy to keep way too much. Here are some guidelines on what you can toss, and what you should keep (and how long to keep it):

Keep:
• Paycheck stubs (keep until you are sure your W-2 is correct)
• Bank statements, credit card statements and bills that document deductions (for three years)
• Tax returns (keep for six years)
• Warranty info and receipts for big-ticket items (keep for as long as you own the product)
• Receipts for IRA contributions (keep forever)
• Investment statements (hold until six years after the investment is sold)
• Home improvement receipts (retain as long as you own the house)

Toss:
• Airline ticket stubs (toss once the miles have been applied to your frequent flyer account)
• ATM receipts (toss once they have cleared your bank)
• Business cards from others (input the data into your contact management software and toss the cards)
• Credit card receipts (once you've reconciled your account, toss any that aren't tax related or might be returned)
• Outdated policies (if you no longer hold the policy, you don't need it)
• Stacks of magazines or clippings you haven't touched in years (enough said)

The best way to keep your home or office organized and clutter-free is by scanning the documents you want keep and throwing away those you don’t. By keeping digital records of your documents, you will also always find what you need quickly and easily -- not only at tax time, but throughout the year.

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