Does the thought of taxes send you into convulsions? You aren’t alone. An American Psychological Association survey shows that 67 percent of people attribute their stress to money. And tax time shines a big spotlight on your financial picture.
There are ways to make tax time easier and less stressful, so you can focus on earning more money and spending free time on fun, not on figuring out your tax bill.
[See: Answers to 7 Burning Tax Questions.]
1. Organize from the beginning. Collect tax-related documents in a basket the second they come in the door. By having all of your information in one-easy-to-find location, you eliminate the stress of wondering where that important sheet is that you misfiled.
Invest in a good scanner. Random papers strewn all over your home office is stressful. Clean up the paper trail by moving all of your documents into a file folder on your computer. You can then store the paper copies away and have the flexibility to send necessary documents at the push of a button whenever you need them.
Many professionals and tax programs have tax organizers that they’re happy to send your way. They are a checklist of all of the documents you’ll need in front of you when you’re ready to begin your taxes. Working through this document gives you the peace of mind that you’ve collected everything and left no stone unturned.
[See: 10 Smart Ways to Spend Your Tax Refund.]
2. Start your prep early. Want stress? Deadlines create stress, and so does finding out at the last minute that you’re missing an important document. Instead, try this trick. Give yourself a time limit to work on your taxes each week. Don’t set out to finish the task — instead only try and start it. Productivity experts agree that this approach will allow you to cut through procrastination and get prepared for tax day well ahead of the deadline.
3. Read a tax form. Many people think of taxes as “magic” and wonder if there are any loopholes or exemptions they can take advantage of. There’s good news: Most of the clues around a lower tax bill are mentioned right on the actual form. That’s right. If you read three pages (the front and back of a 1040 and the itemized deductions page), many of the tax secrets of the universe will open up to you.
On a 1040, you’ll quickly see that it’s simply laid out. At the top, you input your income. And in this section, you’ll see all of the government’s clues to reduce that number. IRA deductions, nontaxable pensions and other ways to cut are laid bare. Do you have a large number in the interest income box? Is the IRA box empty? Look for tax shelters. Is your dividend income number large? Move dividend-paying investments to IRAs and keep capital gains taxed investments outside of tax shelters. The itemized deductions page is chock full of opportunities. Are you taking advantage of gifts to charity, tracking your medical costs or unreimbursed employee expenses? They’re all listed on the itemized deductions page. Here’s a stress reliever: Even tax preparation fees may be deductible.
[See: 7 Most-Missed Tax Deductions and Credits.]
4. Hire the right pro. While there isn’t a single best way to finish your tax return, choosing the right method for you will relieve stress and help you smoothly navigate tax day. When it comes to free filing, 12 different companies partner with the IRS to offer free tax preparation tools. The IRS has an easy-to-use portal, which will guide you through the tax-filing process.
Reducing your tax preparation fees can relieve stress, as can finding the right tools if you aren’t eligible for free software. Use an enrolled tax agent if you have a fairly simple tax situation but don’t qualify for free prep. This person has passed a test administered by the IRS, confirming that they know the basics of the tax system. CPAs are better if you have a more complicated situation, and can be excellent at planning for future years, since part of the CPA exam is on future tax planning. While a tax attorney is fantastic at fighting legal tax battles, there are very few instances where paying more for a tax attorney to complete your return makes sense. Finally, tax-filing software today is excellent. Don’t expect much in the way of tax planning from your software. While it’ll ask all the right questions for this year’s return, you’ll want outside help setting up next year’s return to look just as pretty as you’d like.
5. File an extension. If you’re overwhelmed and know that there’s no way you’ll complete your taxes by the deadline, take a deep breath and file an extension. The bad news? You’ll still need to complete a tax form outlining what you think you owe. You’ll also have to send in any money owed to avoid big tax penalties … but you’ll give yourself until mid-October to dot the i’s and cross your t’s.
Tax day doesn’t have to be stressful. By applying a simple plan of attack and reading just a few pages of the tax form, you’ll be on your way to refocusing on making more money today and spending less time worrying about the money you earned last year.
More from U.S. News
8 Ways You Can Prepare Now for Next Year’s Taxes
9 Red Flags That Could Trigger a Tax Audit
10 Smart Ways to Spend Your Tax Refund
Podcast: 5 Ways to De-Stress During Tax Filing Season originally appeared on usnews.com
