First of all, congratulations! You already submitted your taxes, and we bet you’re feeling relieved now. This part of the year is very stressful for many people but it really doesn’t have to be this way. Yes, you read it right…
There are a lot of things you can do throughout the year that will make your life a lot easier when it’s time to submit your taxes again next year. So, here are some things you can do that will help you avoid all this stress:
#1: Stay Organized:
One of the best advice everyone will give you when it comes to taxes is to stay organized. Just start a folder where you include all the important documents and financial records throughout the entire year. In case you are self-employed, you can simply used QuickBooks Self-employed version. The software is very simple to use and allows you to keep track on your income, expenses, mileage, and capture all your receipts.
#2: Review Your W-4 Withholding:
The withholding is the tax that your employer takes from your pay each check. In case you got a large tax refund this year, you might consider adjusting it. And it’s actually pretty simple. You just need to re-file the W-4 form with your payroll department and the best of all is that you can do it throughout the entire year.
#3: Donate To Charities Before The End Of The Year:
When you donate to charities you’re not only helping others as you can also help yourself. Donating goods or contributing to charity can decrease your tax liability when it’s time to file your taxes next year.
#4: Contribute To Your Retirement Funds:
Contributing to your retiring funds is a great way that you have to decrease the tax burden next year. If you’re contributing to a traditional IRA or to a 401(k), you’ll be able to take $1 for each $1 reduction in your income, in what concerns to taxes.
#5: Sign Up Or Update Your Financial Information In The Health Insurance Marketplace:
In case you were required to pay a tax penalty for not having health insurance, there is something you can do to prevent this from happening again. Just make sure that you sign up for a Marketplace plan until January 31st.
In case you actually bought the 2017 Marketplace insurance during the special Open Enrollment period, you got a tax credit to help pay for the coverage. So, make sure that you don’t forget to update your financial information throughout the year.
#7: Check Your Paycheck Withholding
In case you didn’t know, about 75% of all Americans get a tax refund check, for about $2,400. But you do have the option to get your tax refund check as a part of your regular paycheck. Considering that most taxpayers pay, on average, about $200 in income taxes every single month, this could be a good idea.
#8: Keep Tax Records
When it comes to taxes and when in doubt, you know you need to keep all records. However, you don’t actually need to keep them all. The IRS recommends that you should keep all your tax records for 3 years, in case you have an audit. Plus, some of the documents that you just filed this year can become very handy next year, like the W-2.
Here are some of the tax-related documents that you should keep:
– W-2 forms
– Home purchase closing statement and/or mortgage payment stubs
– Receipts from any donations to charity that you might have done.
– All the receipts for business travel expenses.
– Bank statements and credit card statements.
– Mobile phone bills.
– 1090 forms from any income paid to you, including any dividends you might have got.
– 1090G form for deducting local and state income taxes.
– Canceled checks, especially for deductions and IRA contributions.
– Receipts from any item that may be entitled to a deduction.
– Last year’s tax return, for a quick comparison and reference.
– Pay stubs for the year.
– Car mileage log, in case you need to use your car for business.
– All medical bills, but especially if they are over 7.5% of your income.
Since there are always so many different papers you need to keep and you just want to have everything organized and in one place, some people prefer to scan all the documents and just save them as PDF files on their computer. In case you need any of them, you just need to print them. In case you decide to scan your documents as well, make sure that you backup your computer. The last thing you want is to all these important papers and documents disappear.
#9: Make Long-Term Investments
Long-term investments are the ones that you hold for more than a year and you’re only taxed about 15%. In case you prefer short-term investments, you need to know that these are taxed normally.
#10: Start Planning with A Tax Professional Now
Despite you can fill your taxes on your own and make your own financial decisions, listening to a tax professional might be a good idea, especially if you’re not used to filling your taxes in the first place. However, make sure that you start looking for a good tax professional now and not just when it’s time to file your taxes again. This gives you time to get referrals from a relative, a friend, or even from an advisor. You just need to know that no matter who prepare your taxes, the responsibility of its accuracy is always yours.
#11: Contribute the Maximum Amount to Your 401(k)
When you contribute the maximum amount that is allowed to your 401(k) account, you will be reducing your taxable income for the current tax year. So, when you do this, you’ll be allowing your earnings to grow on a tax-deferred basis. Please note that all contributions to an employer-sponsored plan, 401(k), 457, or 403(b) needs to be made by December 31st.
As you can see, it’s a lot better if you think about your taxes filing throughout the entire year. It will allow you to have everything you need and also to make sure that you take every chance to save on your taxes or to be eligible for a tax refund. However, to make sure that you’ll be ready to go when the time comes, it’s important that you know about one common mistake many taxpayers do and that can be costly – waiting to file.
There are many different reasons why you shouldn’t leave it to the last minute to file your taxes. In the first place, your tax return can be more complicated than you had anticipated. You might need to gather additional information, more paperwork, or even hire a professional tax preparer instead of using a software. This is why it is so important that you have already someone who you can trust and have everything organized. In the second place, one of the worst things that can happen to you besides knowing that you owe a large sum to the IRS is to find out that you don’t have the means to make the payment. This will lead to penalties and interests that you can easily avoid. When you file your taxes early and if you find yourself in this situation, you still have time to think about a plan on how you will make the necessary payment. And in case you do get a tax refund, when you fie your taxes earlier, you’ll get this money earlier as well and you can put it to work for you. This can be specially helpful when you have a child applying for financial aid or when you need to apply for a mortgage. The last reason is that, unfortunately, one of the most common ways of identity theft is when someone files an income tax return your name and just gets away with the refund. This will leave you in an awful position because you’ll need to explain to the IRS what happened and you may get a lot of problems.
As you can see, by keeping everything organized, gathering and filing all the information and documents you might need and make the right investments according to the limit dates, you’ll have a hassle-free tax season. There’s nothing like anticipating what can go wrong and simply file your taxes right on the beginning of the tax season. You’ll be preventing a lot of problems and in case you’re entitled to a refund, you can get the money sooner.
The tax season doesn’t need to be stressful or overwhelming if you do all these things throughout the year. It’s just a matter of getting started and it will soon begin to be a habit.