Are you ready for tax season?
The first quarter of the year is always the hardest for all of us. And getting ahead of your taxes by preparing yourself for April 15th is a real pain in the neck because it will be here in the blink of an eye. Whether you are a first-time tax filer or even a pro, you may want to keep some useful tips in mind.
Let’s face it, nobody is thinking ahead of time to prepare for this task, but in reality, spring will be here sooner than you think, and you don’t want to put yourself in the position of rushing everything because you decided to leave this until the evening of April the 14th. Follow these handy steps to ensure that you’re going to be ready and fully prepared for the next tax season.
1. Decide how you’ll file your taxes
If you’re secure and you are able to do this on your own, you can file your taxes by using one of the many software programs available: TurboTax, Tax act, FreeTaxUsa, and H&R Block. They are so handy and easy to use, but if you’re not OK with doing this alone, you can always ask a family member to help you, or you can enlist the help of a professional.
In fact, it is recommended to ask for help if a major event like divorce, marriage, or becoming a parent has happened recently in your life. This also applies if you purchased a home within the last year. You must ensure that you have all of your bases covered because your tax burden substantially changes after you become a homeowner.
Additionally, accountants can assist you in utilizing advantages and deductions like the mortgage tax credit. The best thing about planning ahead is that you will be able to investigate the aforementioned filing options and decide which program is ideal for you.
So, don’t waste your time! Make sure you do your “job” before Uncle Sam knocks at your door for your money.
2. Can’t afford to hire a professional? Check out alternatives
The golden rule is to not wait until the calendar page flips to April to make the decision to file your taxes. We mentioned before that there are two easy ways to do it: by using software programs (and if you don’t know how to do it, you can ask a family member to help you) or by asking for the help of a professional. If you can’t afford to go to a CPA, there are other available options as well. The VITA (Volunteer Income Tax Assistance) program is offering free courses to help people learn how to file their taxes.
This applies to disabled people or those who don’t understand English very well, as well as to those who earn less than $57,000 a year. People 50 and older or those who cannot afford a professional tax preparer can also get help with their taxes through the AARP Foundation Tax-Aide program.
Don’t forget about the fact that the IRS also has an online tool that helps millions of people get their information regarding this topic. And it is free of charge!
3. Gather income documents
First and foremost, it’s very important to gather all your income documents because it’s impossible to do this without having this financial information. If you’re still working, make sure you ask your employer for all the necessary paperwork, but don’t forget about other financial accounts that you might have under your name.
When filing your taxes, the most important document is your W2, and if you worked more than one job in the previous year, make sure you received one from each.
Besides the above, do not forget to add the following documents to the list: investment income, Social Security benefits, rental property income and expenses, alimony, and miscellaneous income like scholarships and gambling winnings.
4. Max out retirement plan contributions
Do yourself a favor and boost your contributions if you’ve been cautious about supporting your employer-sponsored 401(k), 403(b), or any other tax-deferred retirement account. The money you contribute to these accounts lowers your annual taxable income, which lowers your tax obligation. Contribution limits are $6,000 plus $1,000 in catch-up contributions if you hold an IRA through a broker or bank. Those who are unable to contribute the maximum amount should at least make an effort to do so in order to receive the employer match.
Experts, on the other hand, advise providing as much money as you can afford to your health savings account in case you’re eligible, and you already have a health care plan that is high-deductible. Why? Because you can get a considerable deduction just by contributing to this account.
And all the money from these accounts, as well as withdrawals, are tax-free if they are used exclusively for qualified expenses.
5. Make sure beneficiary designations are up to date
In most cases, people dread this time of year because of all the paperwork. And let’s be honest, sometimes you forget things, and that’s human, but to avoid the anxiety of the season, make sure you gather everything you need in order to be prepared. In fact, this process can be a pretty simple one if you follow these awesome tips!
And the end of the year is the perfect time to review and see who your beneficiary is and who is going to pay your credit after you die. You can also make some changes if you’re no longer content with your choices.
Keep in mind that beneficiary designations won’t have an impact on your taxes today, but they will have an impact on your heirs’ taxes down the road. They say that you shouldn’t be pessimistic, but having everything lined up will have a positive effect on the beneficiaries in case something bad happens to you.
6. Stay away from scams and fraud
Whenever tax season is approaching, I cross my fingers and hope everything will turn out fine. But it’s not always like this, and we all know how much the IRS can mess with our heads. Sadly, during the past few years, I’ve heard complaints from a lot of folks about receiving phone calls during tax season from unknown numbers that falsely identified themselves as IRS employees.
That’s a big red flag since none of these organizations are going to call you on your personal phone. They reach out to all the taxpayers by regular mail, not texts or shady phone calls. Furthermore, they will never ask you about personal details because they already have them.
In case you receive a call like this, make sure you hang up quickly by saying you’re busy and immediately contact the IRS to know for sure that there is nothing wrong with your accounts.
Takeaway:
You’ll be all set if you simply invest a little time and effort in carrying out these five tasks. Additionally, if you are structured in advance, you will eliminate stress and worry. Start planning your money now to file your taxes long before the April deadline. You’ll be happy that you did.
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