According to the Internal Revenue Service, more than 33 million Americans waited until the last two weeks of tax season to file their 2017 tax returns. That means that for many Americans, the days leading up to Tax Day required a mad dash to get organized and get their taxes filed on time.
Rather than limit your preparation to the weeks leading up to Tax Day, taking the time to prepare throughout the year can make the process smoother and more manageable. You’ll be able to file earlier and receive your refund sooner, plus the work you put in can lead to a bigger refund or a lower tax bill.
[See: Answers to 7 Burning Tax Questions.]
Consider lessons learned. While it’s still fresh, take the time to evaluate the tools you used to organize your finances and prepare your taxes. Look at what worked and where you ran into problems. Did you have to scramble to calculate your medical expenses? Did you lose track of how much you donated to charity? Free personal finance software such as Mint or Doxo can keep you organized and pull the data you need when it’s time to file. By entering your receipts, medical expenses and income, the right software can organize your finances by category and provide daily totals for possible deductions.
Review your previous tax returns. Look for trends. Do you keep owing taxes? Were you missing documents? Did you miss out on deductions? Learn from your previous returns, so you don’t make the same mistakes next year. Decide whether you need to change your withholding or if you need to look into new deductions or contribute more to your 401(k). If you were scrambling to get your documents together, make a note to start earlier.
[See: 10 Smart Ways to Spend Your Tax Refund.]
Consider using a professional. If filing your taxes was a struggle, or your taxes were especially complicated, you may want to use a tax-preparation service or connect with a certified public accountant. The national tax-preparation company H&R Block recently started Block Advisors, a year-round tax service. Jackson Hewitt and Liberty Tax both offer year-round services, too. Or use a CPA to help you get all your finances in order. Finding professional help now can get you on the right path for next year’s taxes. If you used a professional to prepare your taxes, meet with him or her to discuss how the preparation went and if there is anything you should be doing to improve the process for next year.
Get organized. Start a file for the documents you’ll need come next tax season. In addition to your previous return, you’ll also want to make a checklist of the tax documents you can expect to receive from your employer or your bank investments, so you know if you’re missing something. Common documents you’ll want to keep for your next return include:
— Paychecks or a list of other income, which may include rental home income, retirement income or freelance work.
— A list of your investments.
— Property tax bills.
— Expenses, including medical expenses, child care, tuition expenses and student loan payments.
— Charitable donations.
Use a tax calculator to check whether you’re on the right track. Companies such as TurboTax and H&R Block have online tax calculators that will estimate your 2019 taxes.
Change withholding. Getting a tax refund could mean you overpaid throughout the year. Look at your withholding on your W-4 form and see whether you need to change it. Conversely, if you owed this year, adjust your withholding, so you aren’t hit with a big tax bill. The IRS offers a withholding calculator that you can use to see if your designations are correct.
Regularly review all your documents. Set aside some time every three months to review your tax files. This will help you avoid any surprises down the road. Keep in mind that some major life events can impact your taxes. Depending on your situation, these events may cause you to owe more or less on your taxes. Common events include marriage, divorce, a new baby, changing jobs, retirement, buying or selling a home, unemployment, winnings from gambling or the lottery and receiving an inheritance.
[See: 7 New Taxes Retirees Face.]
Learn the rules if you’re self-employed. Self-employment income is taxed at a different rate. Employers generally take out a portion of your income each paycheck for your taxes. If you freelance on the side or are self-employed, make sure you set aside enough of each paycheck to cover taxes. While everyone’s financial situation is different, setting aside 40 to 50 percent of each paycheck should allow you to cover any unforeseen tax bills. Use the IRS form 1040-ES to figure out the Social Security and Medicare taxes you will have to set aside.
Use a business credit card to keep your personal receipts and business expenses separate. And make sure you’re planning for the future. Contribute to a retirement savings account and set aside money for health insurance expenses and an emergency savings account.
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Take These 7 Steps Today to Make Filing Next Year’s Taxes Less Painful originally appeared on usnews.com
