Woo-hoo, your taxes are done! Now you can sit back, shove that grungy shoebox of receipts back under your bed for another year! I mean, you could do that, but that doesn’t mean you should. Are you someone who is regularly anxious about tax filing? Whether it’s worry about how much you may owe, how many (and which) documents you need, or any other aspect of the process, then now is the perfect time to look ahead for the next fiscal year and beyond.
The fact is that tax season shouldn’t be stressful or harrowing if you know what to expect. Today we want to share some of the best ways that you can be prepared each year so that you can file quickly and efficiently. Don’t let your 2020 taxes be another burden.
If you’ve just finished filing your taxes for this year, now is the perfect time to take stock of what you need for next year. Unfortunately, most of us wait until the last minute before doing our taxes, which can add a lot of unnecessary stress. Not only is time running out, but tax professionals and accountants are swarmed with work, so trying to get help can be challenging this time of year.
A great way to manage your taxes is to take it quarter by quarter. Rather than look at the whole year, break it down into three-month brackets and take note of any changes or adjustments that happened. This process will help you to stay on top of everything.
Work with a Pro
How much time and energy do you want to spend reading and learning the US tax code? Probably as little as possible, right? Assuming that is the case, you want to start working with a tax professional as soon as you can to avoid any potential headaches that can come from a complicated process.
One thing to keep in mind is that accountants are going to be working hard starting in March, so if you can make an appointment at the beginning of the year (i.e., mid-January), you can get a jump start and not have to fight for your time.
Documentation is one of the most challenging aspects of tax season, particularly when it comes to things like deductions. Although the new tax changes make this process more streamlined (since you can’t deduct as many things), it’s still something you want to manage throughout the year.
If you are deducting anything, be sure to keep receipts as you collect them. If anything changes in your life, make sure that you adjust your forms accordingly. Whether it’s a ledger, a binder, a folder, or a combination of items, keep all of your documents together in a designated place and as organized as you can.
Check Out Changes to the Tax Code
Yes, we just established that you don’t want to pore over the minutiae of the tax code, but that doesn’t mean you should be totally ignorant. You’ll want to be aware of any significant changes to the law itself, as well as any changes to your life that can influence your tax obligations (i.e., getting married).
Talk with a professional if you’re not sure what anything means and be sure to consult with your advisor whenever a new change happens, like a promotion or a child on the way.
Know What Will Affect Your Taxes
Along with understanding the basics of the tax code, you should know what elements of your life will influence your tax preparation. For the most part, these can include:
- Healthcare Costs (Form 1095)
- Retirement Plans (401k)
- Charitable Contributions
- Child Care Expenses
- Mortgage Payments
- Non-Salaried Payments (1099)
- Location Change (Moving)
- Tuition or Student Loans
- Increased Income
- Marital Status
If any of these things change during the year, they can impact your tax return. In most cases, they will be beneficial for you, so you want to make sure that you know what to expect before tax season arrives.
Figure Out a Tax Payment Plan
For many Americans, tax time equals a refund from the government. However, if you wind up paying taxes, the stress of a massive bill can be a lot to handle. In some cases, you may think that putting your bill on a credit card is an easy way to take care of it, but that will usually cost more in interest.
Instead, you can file for a payment plan through the IRS. You will be charged interest and a fee for doing so, but it will be substantially less than putting it on credit.
See How You Can Reduce Your Tax Burden
When talking to your financial advisor or tax professional, be sure to discuss any of the many ways that you can reduce your taxes. Whether it’s putting money into a tax-beneficial account, getting subsidies for home improvements (i.e., green energy), or something else, it’s worth it to lighten the financial load each year.
Rely on the IRS for Information
The IRS is not a boogeyman trying to steal your money. It’s a government organization that offers plenty of information related to taxes and how to pay them. You can find a lot of this data on the IRS website, or you can call for more details about your tax preparation.
Use Software to Make Organization Easy
We already talked about the value of staying organized, but if you’re taking a traditional approach to things (i.e., pen and paper), then it can be a little overwhelming. Instead, let technology assist with spreadsheets and tools to help balance your budget. There are several options out there, and they can give some peace of mind regarding your tax bill.
Try to Minimize Your Withholding
Whether you owe money or get a refund, the amount shouldn’t be more than a few hundred dollars, according to the IRS. If you’re a freelancer, you should be paying taxes quarterly so that you aren’t overwhelmed at tax time. If you’re getting a massive refund, then that means you’re paying extra money to the government throughout the year, without getting any interest on that money.
Overall, you should talk with your advisor to see how you can lower the number in either direction. While it may not be possible to have a totally balanced tax bill, it shouldn’t be too high to be unmanageable, which will help reduce your stress.
Opinions expressed in the article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.