Ugh. It’s Tax Time. I know, I know! I don’t think I’ve ever met anyone who wouldn’t rather be doing anything else besides getting their taxes ready or “doing” their taxes.
I’m sure we all know people that have to scramble or spend many hours to pull their paperwork together to file their taxes year after year. So many people just can’t seem to get it together timely and have to file extensions even though we all know that every year on April 15th we have to file our taxes.
Of course, there are extenuating circumstances and some do have to wait and file in October, but, for the rest, in my opinion, filing an extension just prolongs the agony of having to get this paperwork done.
Think about this…What if it only took an hour every year to pull your tax documents together? Don’t you think that most people wouldn’t dread it as much? Of course, nobody wants to give the government their hard-earned money BUT, I’m thinking it wouldn’t be such a dreadful task if it only took an hour to pull it together. Truth be told, it should not take more than an hour to pull your tax documents together.
But, it’s something we all have to do so why not make it easier so it’s not such a bummer every year. It’s still not too late to put these suggestions into play for this tax season but, at the very least, think about putting these ideas into place so next year it won’t be so stressful.
I do understand that tax preparation can be a daunting task. However, with some organization and planning, you can make the process smoother. Here are some tips to make tax preparation easier:
1. Organize Paperwork:
a. Maintain organized records of your income, expenses and receipts including, but not limited to, income from all sources such as:
i. Income statements (W-2s, 1099’s, 1098’s)
ii. Receipts for deductions
iii. Investment statements
2. Plan Ahead:
a. Don’t wait until the last minute to start preparing your taxes.
i. Begin gathering your documents and organizing your finances well before the tax filing deadline to avoid unnecessary stress
3. Track Income and Expenses:
a. Keep track of all sources of income and expenses throughout the year including, but not limited to:
i. Wages
ii. Freelance income
iii. Interest
iv. Dividends
v. Rental income
vi. Expenses:
• Medical expenses
• Charitable donations
• Business expenses
4. Use Technology:
a. Consider using tax software or apps to automate record-keeping and tax calculations and to track income and expenses.
i. Many software programs can import data directly from financial institutions
ii. These tools can help you categorize transactions, reconcile accounts and generate reports that simplify tax preparation.
b. Consider using digital storage or cloud-based solutions for easy access and backup
5. Understand Tax Deductions and Credits:
a. Educate yourself about tax deductions and credits available to you, including:
i. Deductions for mortgage interest
ii. Property taxes
iii. Education expenses
iv. Home office deductions
v. Energy-efficient home improvements
vi. Retirement contributions
vii. Charitable donations
viii. Medical expenses
ix. Education expenses
x. Credits:
• Earned Income Tax Credit (EITC)
• Child Tax Credit
6. Stay Informed About Tax Law Changes:
a. Tax laws change from year to year so it’s essential to stay informed about any updates that may affect your tax situation. This includes:
i. Changes to tax rates
ii. Deductions
iii. Credits
7. Plan Major Financial Events:
a. Consider the tax implications of major financial decisions.
i. Planning ahead can help you make informed decisions, minimize tax liabilities and optimize tax benefits such as:
• Buying or selling a home
• Starting a business
• Investing
8. Avoid Surprises:
a. Changes in your financial situation may affect your taxes such as:
i. Marriage
ii. Divorce
iii. Birth of a child
iv. Significant changes in income
9. Contribute to Retirement Accounts:
a. Maximize contributions to retirement accounts to reduce taxable income and save for retirement, including, but not limited to:
i. IRAs
ii. 401(k)s
iii. 403(b)s
b. Take advantage of employer-sponsored retirement plans and contribute at least enough to receive any employer matching contributions
c. Consider making catch-up contributions if you’re over 50
10. Review Paycheck Withholding:
a. Regularly review your paycheck withholding to ensure you’re having the correct amount of taxes withheld from your pay
b. Adjust withholding allowances as needed to avoid owing too much or receiving a large refund at tax time
11. Keep Records of Estimated Tax Payments:
a. If you’re self-employed or receive income without tax withholding, make estimated tax payments throughout the year
b. Keep detailed records of payments made to ensure compliance and avoid underpayment penalties
c. If you’re required to make quarterly estimated tax payments, keep track of the due dates and amounts owed
d. Set up reminders or automatic payments to ensure you meet your tax obligations on time and avoid penalties
12. File Electronically:
a. Filing your taxes electronically is generally faster and more accurate than filing by mail
i. Many tax preparation software programs offer e-filing options, which can also speed up your refund process if you’re owed one
13. Review Before Filing:
a. Carefully review all the information to ensure accuracy before submitting your tax return
b. Double-check:
i. Calculations
ii. Verify that you’ve included all necessary forms and documentation
iii. Confirm that you’ve signed and dated the returns
14. File an Extension if Needed:
a. If you’re unable to file your taxes by the deadline, consider filing for an extension
i. Keep in mind that an extension to file is not an extension to pay any taxes owed.
• If you anticipate owing taxes, you should estimate and pay as much as possible by the deadline to minimize penalties and interest
15. Set Aside Funds for Taxes:
a. If you’re self-employed or receive income without taxes withheld, set aside a portion of your earnings throughout the year to cover your tax liability
i. This can help prevent a large tax bill and potential penalties at tax time
16. Consult a Tax Professional:
a. If your tax situation is complex or if you’re not comfortable preparing your taxes yourself, consider hiring a qualified tax professional to assist you.
i. Consult with a tax professional to understand how changes in the tax laws may impact your tax situation
ii. A tax professional can provide personalized guidance, help you maximize deductions and credits and ensure compliance with tax laws.
Bottom line is…keeping your paperwork organized will save you a substantial amount of time and money. Further, by implementing these suggestions, tax preparation can be easy and manageable throughout the year, reducing stress and ensuring compliance with tax laws.
If you or anyone you know needs help with Organizing, Downsizing, Relocations, Estate Sales or Clearing a Property, let them know that we’d love to be of service!