4 Ideas to Prepare and Make Tax Time a Little Less Painful
Filing your taxes can every year be tough — especially if you don’t spend any time thinking about it the rest of the year.
Don’t worry, you’re not alone if you fall into that “I don’t think about this stuff” category. And while there are benefits to being more aware of your tax situation throughout the year, there are still things you can do quickly now to make tax time a little easier to bear.
You could potentially even increase your tax refund by getting proactive today!
Make taxes a little less painful this April by considering these 4 ideas to help you prepare.
1. Look for These Documents and Get Yourself Organized
Depending on your situation, there are different documents you might need to properly file your return. No matter what, gathering this paperwork now is going to make your life a whole lot easier.
Here are the main documents most folks need:
W-2: If you earn a wage or salary, your employer will likely send you a W-2 by the end of January.
This form shows a few things, including how much you earned for the year, how much tax you already paid through withholdings, and how much you contributed to an employer-sponsored retirement plan.
1099s: Your employer or clients will likely send you 1099s to show how much they paid you throughout the year.
Not sure if you should look out for these forms? If you made money on your own as a freelancer, you work for someone as an independent contractor, or you earned some extra cash on the side of your day job through a side hustle, you should receive them.
Again, the person or company issuing the 1099 should send this to you by the end of January.
Bank statements: If you’re self-employed and not paid on a 1099 basis, you’ll need to use your bank statements to calculate income. (These are also handy to file away for a variety of reasons no matter how you earn your money.)
Receipts: If you plan to itemize your deductions, you need receipts for any charitable contributions you made or medical expenses you incurred throughout the year.
If you own a business, you need receipts for all the business expenses you plan to claim. You can also deduct a lot on your taxes for activities or purchases you had to make for business purposes, like travel, entertainment, home-office expenses, and more.
2. Choose How You’ll File: CPA vs. DIY
What’s the best way to get your taxes done? Should you do it yourself or hand all your paperwork to a pro to do it for you?
The answer usually depends on the complexity of your financial situation.
If you’re a W-2 employee and don’t plan to itemize your deductions, there are several tax preparation services that can help you file your federal taxes for free. You can consider using tax software to help you DIY, too.
If you do itemize or have a little more going on than just a W2 form, taxes get trickier.
As complications in your financial situation increase, a CPA is probably the right way to go. They can help you navigate complicated tax laws and point out tax breaks that you may not know about.
Additionally, a CPA can help handle things if the IRS decides to audit your return.
CPAs are pretty much a must for business owners. It’s a smart investment that can save you from making some big, expensive mistakes if you file on your own.
3. Keep It All Together
Keep everything you need to file your taxes in the same place. It will help you avoid a last-minute scramble that delays your return or creates opportunity for errors.
Storing your files digitally is fine (as long as you store them securely!). Legitimate CPAs will have secure file-sharing systems for you to send them all your documents electronically.
For some people, paper copies seem to work better and that’s okay, too. Some experts even suggest keeping your tax stuff in a shoebox to make it easier to keep up with!
No matter what you choose, make that decision now — and then get organized.
4. Find Ways to Lower Your Tax Liability
Once you’re organized and know how you plan to file, the next step is to find ways to decrease how much you owe on your tax return (or possibly get a bigger refund).
Here are just a few things you can do now to take advantage of tax breaks:
Contribute more toward retirement. The contributions you make to certain qualified retirement accounts don’t count toward your adjusted gross income when you file taxes. That means your income looks lower, and you could pay less in taxes.
If you contribute $10,000 to your 401(k) and have an effective tax rate of 25 percent, for example, you get a tax savings of $2,500 andsave money for the future.
Just keep in mind that there are limits to how much you can contribute to tax-deferred retirement plans. For the 2018 tax year, that’s $18,500 for a 401(k) and $5,500 for an IRA.
Note that not all retirement accounts are tax-deferred. Contributions to a Roth 401(k) or Roth IRA won’t help lower your taxable income this year. If that’s the goal, focus on regular 401(k) and traditional IRA contributions instead.
(Those aren’t the only tax-deferred accounts out there. SEP and SIMPLE IRAs are, too, but you may not qualify for those depending on the status of your income and employment.)
Many of these accounts (except for your 401(k)) allow you to make “catch-up” contributions and fund the account for the 2017 year up until this’ year’s filing deadline. Act now and you could lower your tax burden while also giving your retirement savings a boost.
Related: Are You Better or Worse Off Financially This Year?
Take advantage of HSAs or FSAs: Health savings accounts (HSAs) and flexible spending accounts (FSAs) allow you to save for qualified medical expenses while also reducing your taxable income.
As with a qualified retirement account, contributions you make to an HSA or FSA are tax-free. Within an HSA, the earnings on your money that you may invest there are tax-free, too. When you spend on qualified expenses, you also get a tax break.
While you can’t make last-minute contributions to an FSA, you can with an HSA if you qualify to use one. You need a high-deductible health plan (or HDHP) in order to contribute.
And don’t forget that while HSA funds roll over from year to year, FSA money doesn’t! It’s use it or lose it. Plan ahead and make your necessary doctor’s appointments now to make sure that money goes to use this year.
Track your mileage: If you’re self-employed, you can deduct the miles you drive for your business. If you haven’t been tracking miles throughout the year, now is a good time to start.
Taxes Are Tough, But They Don’t Have to Be So Painful
At the end of the day, I can’t make taxes a happy, joyous time for you. (Don’t you wish there was a tax fairy who could magically make it all so much easier?!)
But I can help you reduce a little stress and make the process a bit less painful.
If you act now, you may be able to make some last-minute moves that could save you money and lower your taxable income. And at the very least, you’ll save time and stress if you get organized today.
The more time you spend preparing and strategizing beforehand, the better your tax season will feel.
Most Read IRIS Articles of the Week: Feb 19-23
Here’s a look at the Top 11 Most Viewed Articles of the Week on IRIS.xyz, Feb 19-23, 2018
Click the headline to read the full article. Enjoy!
I’d like to introduce you to Peggy. Born in 1956, Peggy will be 62 in 2018. She has worked in retail her whole life, the past twenty-five years spent in management. Peggy divorced from her husband 14 years ago, is still single and has no children. — Dana Anspach
This week the markets shrugged off last week’s fears and went back to the slow and steady melt up, despite economic news that looked likely to once again rock the boat. — Lenore Elle Hawkins
Themes established in 2017 across a wide range of markets and factors continued to resonate through the fourth quarter. Economic growth was strong and supportive of equity markets across the globe, a range of volatility measures reached all-time lows, and business and consumer sentiment remained elevated. — Yazann Romahi and Garrett Norman
Advisors and investors that feel they are hearing more and more about commodities and the corresponding exchange traded products in recent months are right. That is a natural result of dollar weakness and yes, the greenback is floundering again in 2018. — Tom Lydon
As the industry works to cope with new regulation, wades through an outpouring of new products, learns to satisfy investors’ shifting priorities and manages the active-passive debate, the viability of business units will be questioned, and at times radical measures will be taken. — Peter Hopkins
My hope is that this article points out some opportunities for you to make more money and serve your clients at a higher level and that you decide to do something about it. — Bill Bachrach
Whether the market is flying high or taunting your emotions with new lows and some bumpy volatility, here are four things every investor should keep in mind ... — Lauren Klein
Why financial advisors NEED to understand much more clearly the power of good digital market. With tools like AdvisorStream, it’s easier than ever to get the content you need to drive leads and referrals today! — Kirk Lowe and Matt Halloran
How do some firms and ideas go from nowhere to everywhere in a few short months? All of a sudden a restaurant becomes popular, a gas station gains a cult following, or a Broadway show becomes too popular to get a ticket for years. — Maribeth Kuzmeski
"Worldwide, $27.4 billion poured into fintech startups in 2017, Accenture reports, up 18% from 2016. With so much in play, it’s not surprising that 22 companies are new on this, the third edition of our list." — Chris Skinner
Many sensational headlines have been written the past few weeks about market declines, but two things have increased for sure: the viewership and the ad revenues of financial media organizations — Preston McSwain
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