Tax time is looming and it’s a good idea to start thinking about how you’ll handle your tax return this year. With the new laws and regulations, it’s a lot to keep track of. With that being said, preparing early and not waiting until the April 15 filing deadline to get your tax return in is a big key. Before you do anything, check out these best ways to prepare for tax-filing season.
How to prepare for Tax Season
1.Triple check your paycheck
If it’s been awhile since you looked at the withholding amount on your paycheck, you may want to get out your paychecks and triple check that your employer is withholding the right amount. If you’re not having enough tax withheld from your paycheck, you will owe big bucks at tax time. On the other hand, if too much tax is being withheld, you’ll get a refund. So, do yourself a favor now and triple check your paycheck and make sure everything’s in order before tax time!
2. Decide whether or not a professional will prepare your taxes
Have you gone through major changes in your life in the last year? Like marriage, divorce, or you started your own business? If so, your taxes are going to be a whole lot more complicated. To save yourself the stress, it may be smart to book in with a tax professional to prepare and file your taxes. The cost of this will depend on when you book in and who you book in with. The average fee for a basic tax form preparation is about $176. Many tax professionals will charge more as the April 15 filing deadline nears, so get in early and save yourself some cash!
Looking for some help? Credit Karma is a great website that will help you with your taxes for free. You can estimate how much your returns will be!
3. Up your retirement plan contributions this tax season
Do yourself a favor now and increase your retirement plan contributions – especially if you’ve been stingy with this in the past. The money you put into these accounts actually reduces your taxable income for the year, which reduces your tax bill. It isn’t taxed until you withdraw it. If you can’t afford to pay the maximum amount in contributions, you should at least try to contribute the amount that will be matched by employer contributions. Just think, all of that money is tax-deferred and grows tax-free.
4. Gather together the paperwork for your dependents
If you’re going to include dependents (children or elderly) on your tax return, there are a lot of documents that you will need to provide. These include their social security and tax ID numbers, their dates of birth, childcare payment records (this includes the care provider’s tax ID number), adoption papers (if applicable), form 8332 to show that a custodial parent is releasing their right to claim the child to you, the noncustodial parent (if applicable), any alimony payments that have an ex-spouse’s social security number and any death certificates. Gather together all of this paperwork for your dependents early to save yourself the stress later.
5. Account for all deductions possible this tax season
A tax deduction is ultimately a reduction in income which is subject to state and federal income taxes. With decreasing your total taxable income, this can reduce the amount of income tax you would have originally owed. Moreover, if you’re going to itemize your deductions, you will need to provide documentation for each.
Here are multiple potential deductions to look out for:
- All expenses if self-employed, including credit card statements and receipts
- Expenses related to investments
- Records of expenses for rental homes
- Real estate and property tax records
- Records of medical expenses, including payments made to doctors, dentists, clinics, or hospitals
- Insurance payments
- Childcare expenses, including daycare and babysitters
- Qualifying educational expenses
- Interest on student loans
- Job-related vehicle expenses
- Relocation expenses not covered by employer
- Contributions made towards retirement plan
6. Prepare yourself in case you owe this tax season
Not everyone is lucky enough to receive a tax refund. Unfortunately, many will owe money in taxes after filing. Your income, W-4 and a variety of other factors will determine whether or not you will be receiving a refund or owing taxes. Furthermore, look into your tax preferences and see if you will owe taxes this year. If you’re going to likely owe on your taxes, make a budgeting plan to ensure you’re able to pay the amount owed. Therefore, the last thing you want is to be caught off guard when filing your tax return and be totally unprepared to pay what you owe.
7. Plan what to do with your refund after this tax season
Next, if you do receive a tax refund this tax-filing season, you may want to plan what you’re going to do with it. Depending on your finances, what you do with your refund may change each year. For example, maybe you have a debt you’d like to pay off, maybe you want to take a vacation with your refund or maybe you would like to save your tax refund money. Take a look at your finances and determine what your refund should be put towards.
If you want to use it to knock off some of your debt but also want to spend it on something more fun, you can always split the refund up. The opportunities are practically endless with tax refund planning and spending, however, just make sure to consider your finances first. You wouldn’t want to wrongly spend your refund and make your finances suffer. Not a fun time.
Investing in stocks for the long run return is also a great option. Check out Acorns, a great investment company for beginners and newbies that aren’t ready to spend a whole lot on investing.
8. Check your credit score before this tax season
Regardless of whether it’s tax season or not, you should always know what your credit score is currently sitting at because it could impact all of your finances, even your taxes. Utilize tools such as Transunion to check your credit score and make sure everything looks okay before filing your taxes.
We hope you enjoyed this article on the best ways to prepare for tax season and we hope we could provide you with some helpful tips to kick tax season’s butt this year!