As anyone who’s filed taxes after getting married, moving across state lines, or switching to a freelance life knows, major life changes can make your relationship with the IRS complicated. For advice on how to handle all of the additional paperwork, we turned to Laura D. Adams, author of the new book, Money Girl’s Smart Moves to Grow Rich, and host of the weekly Money Girl podcast. Here are her six tips on staying ahead of the IRS:
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1. Report any name change, along with your new Social Security number. If you changed your name after tying the knot, then you need a new Social Security number, too. Many newlyweds get tripped up when their names don’t match their numbers, which can cause returns to be rejected. Adams suggests visiting socialsecurity.gov to get all your paperwork in order.
2. Report your new address. If you've moved, be sure to let the IRS know by submitting Form 8822, which you can download at irs.gov. Also, don't forget to tell your employer, so your W-2s and other forms get sent to the correct address. Plus, if you crossed state lines, you’ll need to make sure you’re paying the correct state taxes.
3. Check your withholding. After buying a home, getting married, or having a baby, many people find that they are not withholding the correct amount from their paycheck each month. That can mean you end up owing Uncle Sam a lot of money on April 15—or you get a refund check. Says Adams: “It's a good idea to submit a new Form W-4 at work any time you experience a significant life event like a marriage or having children.”
4. Choose the least expensive tax filing status. You get to choose how you want to file your taxes each year. Married people can file jointly—sharing their income, deductions, and credits—or they can file separately. Filing jointly is usually is the best option, but you should do your taxes both ways to make sure you know which status results in the lowest tax bill, Adams recommends.
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5. Use a tax accountant. Accountants can be expensive, but Adams says that especially if your tax situation is complicated, a professional can end up saving you money.
6. Deduct moving expenses. If you move at least 50 miles away to take a new job or start a business, you can deduct reasonable moving expenses, such as the cost of transportation and lodging for you and your family while traveling to your new home. However, you can't deduct any moving expenses that are reimbursed by your employer. Be sure to refer to Publication 521, Moving Expenses for more details about taking this tax deduction.
Kimberly Palmer is the author of the new book Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back.
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N. Cook of MN 1:43AM March 13, 2011
prb of MD 8:03PM March 10, 2011