Tax Season: How to Plan Ahead
I don’t know many people who look forward to tax season. As a result, they tend to put it off, reasoning that they have plenty of time to prepare. But the truth is, while April 15th may seem a long ways away, it’s much closer than you think—particularly if you don’t have your ducks in a row.
Planning ahead not only helps you ensure that you have everything ready when it’s time to file, but also provides peace of mind, so you can spend those early April days planting your garden, sorting out the details of your next vacation—anything other than scrambling to make that tax deadline, or worrying that you’re paying more than you could be.
Here are a few tips on how you can get ready for tax season ASAP—and avoid a lot of stress next year and beyond:
Show me the receipts
Whether you handle things yourself or count on a trusted professional, filing will be that much easier if you have all of the relevant paperwork on hand before you start the process. You need to have any documents that confirm your income and the deductions you’ll take. In addition to the obvious—W-2s and/or 1099s—take the time to compile any financial statements, invoices, receipts, and paystubs now. Waiting for tax documents to arrive via mail? Consider keeping a file or folder on hand to immediately catalog anything new that comes through.
This is also the perfect time to get set up for next year’s filing. Create a system to tuck these items away now and do so all year long, so you’re not hustling to the finish line when it’s time to reconcile next year’s paperwork. Unsure whether you have everything you need, or whether there’s more you can do to pay less? Reach out to your financial advisor for insight.
Keep it together
When all is said and done, you can breathe a sigh of relief. But don’t toss anything out. You’ve got to keep those documents for up to three years, in case the IRS comes knocking. Keep your files in a designated, safe spot that you can easily access if necessary. There are plenty of other reasons your tax records may be helpful down the line, including Social Security purposes, so plan on storing them a whole lot longer.
Think about tomorrow
We’ve discussed the importance of tracking down the paperwork you need now—and creating a system to log it as it comes in to save yourself some time and anxiety in the future. But there’s a lot more you can do to plan for tomorrow and hold onto more of your money. For example, there are a number of opportunities you can take advantage of with some careful planning—and the support of an expert—particularly if you are nearing or in retirement. Those over fifty can sock away more money in IRAs and 401(k)s, for instance, and if your spouse is still working, he or she can contribute to your plan as well as to his or her own. And that’s just the tip of the iceberg; there are lots of other strategies to help lower your tax bill.
When it comes to taxes—and your future—it’s never too early to start preparing. While I haven’t met anyone who was truly excited to do their taxes, I’ve also never talked to anyone who said they regretted planning ahead. What are you going to do to get ahead this tax season?