Those W2s have rolled in — and you had better follow up with your employer(s) if they have not — so now it’s time to get down to the business of doing your taxes. Here are some things to think about as you get ready for the April 15 deadline:
Most common tax errorsIt's easy to make mistakes on your taxes. After all, computing your capital gain or figuring out the appropriate amount of depreciation can be complicated. But some of the most common errors are actually ones that are easily avoidable, if you pay attention.
According to the IRS, some of the most common mistakes include:
- Forgetting to sign your return
- Forgetting to enclose your W-2
- Putting your federal return in your state envelope (and vice versa)
- And probably the biggest of all: either failing to include your Social Security number (or writing it down incorrectly for yourself, your spouse, or your dependent).
Another big area for mistakes: the earned income tax credit. Many people claim it if they're not eligible, or they compute an incorrect amount. In most cases, married couples can't claim it if they have one child and earn more than $30,666 or two children and earn more than $34,692.
Charitable giftsDonating your old belongings to charity? Make sure you keep good records so that you can take the deductions at tax time. Here’s what to bear in mind:
- If what you're giving away is worth less than $250, you need a written record of what you dropped off, where you dropped it (the location of the Goodwill box, for example), and how much it was worth.
- Above $250, you'll need a receipt from the charity itself with a reasonably detailed description of the property.
- Above $500, you need to include details of how you got the property and what it originally cost.
- And above $5,000, you need a professional appraisal.
What to do with your tax refund
Thanks to new tax laws, it's likely your refund may be bigger this year. So what should you do with the money? While it's tempting to buy a new pair of shoes or spend the dough on a day at the spa, I suggest using the extra cash to help get your finances in order. Here are a few options:
- This is a particularly good idea if you're still paying down credit cards that carry high interest rates, say in the 16 percent to 18 percent range. At 18 percent, for example, paying off a $2,100 credit card debt would save you $378 a year in interest.
- No matter what your job status is, it's important to create a safety net in case you get laid off or fall ill. Generally speaking, you want to set aside three to six months of living expenses.
- If you haven't been maxing out your own retirement savings options, kick some money into your 401(k) or a Roth IRA or a traditional IRA.
Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Her latest book, "Pay It Down: From Debt to Wealth on $10 a Day," is now in bookstores. Copyright ©2005. For more information, go to her Web site, .