Tax season is rapidly approaching, and most employers will send employee’s W-2’s out by the end of January. Now is the time to start getting ready to file your taxes. It’s beneficial to be attentive to your taxes throughout the year, which will help you stay organized and avoid scrambling when tax season rolls around. Here are seven ways to get a jump on your taxes, but should you have any questions, it is best to consult a professional tax advisor.
1. Review Your Filing Status – The status of your filing can impact how much you owe each year and whether or not you have to file at all. It’s important to know if your filing status will or has changed during the year. For example, if there was a change in your marital status this year it could switch your filing from single to joint.
2. Select How Much Tax to Withhold - If you received a large refund on your tax return last year, it could mean your employer is withholding a large amount from your paychecks. If you chose to decrease the withholding, it could give you access to more of your money throughout the year. It’s all a matter of preference. It’s important to meet with your payroll manager to review your withholding allowances on your W-4 form.
3. Establish Your System – There are a number of ways to organize your tax records, but it’s important to have a filing system that works for you and has all the documents you need in one place. Avoid waiting until the last minute to organize your important documents, instead keep all tax information in a safe place. While most tax documents will arrive near the beginning of the year, others will appear throughout the year.
4. Save Tax Deductible Information – Do you own your own business or plan to itemize your deductions? If so, you should hold onto your receipts and other documents for eligible expenses. You won’t need to submit your receipts with your tax return, but you may need to substantiate your expenses if the IRS audits your return. The same can be done for home improvements, especially if you plan to sell your home.
5. Track Your Charitable Contributions – Doing good for others really does payoff – you may receive a tax benefit. You can include charitable contributions to qualified organizations in your itemized deduction, but this may require extra documentation. It’s important to keep good records of all your charitable contributions to qualified organizations throughout the year.
6. Plan for Estimated Taxes – Underpaying taxes throughout the year can have negative consequences. If you expect to owe $1,000 or more in taxes when you file, the IRS generally requires you make estimated tax payments throughout the year. This is especially important for business owners or self-employed individuals who generally don’t pay income taxes on their earnings. It could be wise to work with a tax accountant to determine how much you should set aside and pay each quarter.
7. Don’t Bank on Potential Tax Breaks – The IRS offers some tax credits and deductions that can potentially reduce your tax liability. But, if you spend more just for the purpose of a tax break, you may end up losing money. It’s important to familiarize yourself with new tax rules. Take a second and review CNBC for changes in income taxes for 2020.
A large number of taxpayers consider filing taxes a stressful experience, but it doesn’t have to be. By staying organized throughout the year, you can make the process much easier. It’s key to keep track of important tax information and store it in an easily accessible location.
We hope you found these tax season preparations tips helpful, but if you have any questions, please consult a professional tax advisor. And, don’t forget, Tax Day is April 15, 2020. If you have any other tips or ideas, please share them below.
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