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Planning for Tax Preparation

February 7, 2013


Written by: Jayne McBurney, Family and Consumer Sciences Extension Agent, Johnston County, North Carolina Cooperative Extension, North Carolina State University.

It’s that time again!
It is inevitable; we must file our tax returns. But it need not be a taxing experience! By getting organized ahead of time, filing taxes can be done efficiently and accurately. The first steps are easy: Who, What, When and How.

Who will be counted on your tax return as a dependent? Make sure that you have a social security number or tax identification number for each person that will be listed as a dependent. If you share custody of minor children, make sure there is complete agreement upon and understanding of who will claim these children. This conversation may need to take place each year even for established co-parents. It is particularly important for new co-parents and when there has been a recent change in status; such as, when a non-resident parent first begins making child support payments or for newly separated/divorced parents.

Employers will provide an earnings statement commonly referred to as a “W-2 form.” You will need to collect W-2s for each person, typically spouses on a joint income tax return. Employers are required to provide W-2s no later than January 31 each year. Find out if your employer will be mailing the W-2 or if you should look it up online. Collect all other earnings statements as well, 1099 forms show earned income from interest, investments and independent contractor work. If your spouse is retired, be sure to collect the 1099-R which reports retirement income paid to the retiree in your household.

The sooner you file, the sooner you know how much you owe, or the amount of your anticipated refund. It is best to start soon in preparing your taxes so you have time to be sure you have all the supporting documents, such as receipts for deductible expenses and to have to time to double-check calculations. Planning ahead significantly reduces stress.

Many taxpayers are eligible to file online. The IRS provides the fillable forms option for people who are comfortable filling out tax forms and schedules without software help. It provides “do-it-yourself” tax filers with an experience similar to filling out paper forms (except you can type numbers into spaces on the form and print out the form instead of writing everything out). Fillable forms can be printed out and submitted by mail, or they can be filed electronically. For tax filers with an income less than $57,000 (2012 figure), there is also an option to access free tax preparation software.

To use Free File Fillable Forms and submit your tax return electronically, you create an account and input and submit your information as directed. Here is an IRS FAQ with additional information:,,id=226829,00.html.
If you are not sure how to file your taxes or you do not have Internet access, you can go to your local State Employees Credit Union, and ask if they are providing Voluntary Income Tax Assistance (VITA) Program. You can receive your refund in about 10 days if you file your return online and opt for direct deposit.

Those are the EASY questions. The harder questions and answers are those that relate to deductions?
A tax deduction is subtracted from the amount of income that is taxed, your tax liability. After income is determined, tax filers must consider if they wish to take the Standard Deduction or itemize deductible items. Itemized deductions can include medical and dental expenses, taxes, charitable contributions, home mortgage interest, casualty losses, and miscellaneous; some of these deductions apply also as part of the Alternative Minimum Tax (AMT) calculation. So, some calculations might be in order to determine if it is better to take the Standard deduction or to itemize. For a married couple filing a joint return the standard deduction is $11,900 (2012 figure). Many of the computer-based tax filing programs will help you determine what is best for you, and they will do the math!

Once it is determined whether to itemize deductible expenses or to take the standard deduction, then tax credits can be figured. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes; and act as incentives to promote decisions that benefit families, the environment, and/or society. Tax credits include child and dependent care, educational credits, residential energy credits, and retirement savings contribution credit; these are non-refundable credits. Non-refundable credits can be used in amounts up to the total of your tax liability. Excess non-refundable credits either must be carried forward to another tax year or be lost; they cannot result in an income tax refund.

When refundable tax credits exceed your tax liability the credit results in an income tax refund. Refundable tax credits include Earned Income Credit, which is probably the least used credit available. Couples earning less than $49,000 should review their eligibility for this credit that is based on the number of children in your home. You must have earned income to be eligible for this credit!

What do I do with my Tax Refund?

First, avoid the urge to get a cash advance on your refund! The amount of money charged to receive an early refund far exceeds the benefit! Complete and correct returns filed online are often directly deposited into bank accounts within ten days.

When you receive your refund, payoff debt that you have, avoid the temptation to buy something new. A credit card debt of $3000 at 12% interest will take more than 17 months to pay off when making payments of $200 each month. By putting just $500 of a tax refund towards that debt, the remaining $2500 could be paid off in just 14 months. This is the easiest way to pay down these type of debts. If you have a bit more self-control, keep your refund in a bank account and earn interest on it. Then, each month add just $50 to the monthly payment, increasing it to $250; in just 13 months the debt will be paid off.

If you have no debt, invest in your future. Why not open a Roth IRA account? If you start an account with a modest $400, then add a bit each month; you could have a nest egg at retirement. For example, if a 29 year old starts an IRA with just $400, earning 8% interest, then adds $50 each month, by age 65 there will be $127,629 to enjoy. Increase that monthly amount to $100 and you will have $248, 872!

With a little planning, you are sure to find a good use for your tax refund, rather than just buying something new. Why not invest in your future financial security by paying down debt and investing in your retirement.

National Financial Management Core Competencies in this blog: Earning, Saving.

How to cite this article:
McBurney, J. (2013, February). Planning for tax preparation. Available at:

Bird, C. (2009). Smart money tips: Getting the most from your tax refund (FCS-528-01). Available at:

Bird, C. (2009). Smart money tips: Smart uses for your tax refund (FCS-528-02). Available at:

Bankrate Monitor (2013, month).

Internal Revenue Service (2012, December). EITC Income limits, maximum credit amounts and tax law updates. Available at:,-Maximum-Credit–Amounts-and-Tax-Law-Updates

Internal Revenue Service (2012, January). Top 10 Helpful Features on the IRS Website. Available at: