- April 15 may seem far away, but it’s not too early to start thinking about organizing your taxes, especially if you know you’ll have to do some digging to unearth the necessary receipts and other paperwork.
A little advance planning can make doing your taxes a lot less stressful, and can help avoid any unpleasant surprises. Getting an early start also gives you time to research the latest tax rules and regulations to make sure you’re taking advantage of all the deductions.
Before Taxes Are Due
The first step in getting your taxes prepared is to set aside some time to collect the information you know you’ll need. Typical items include your return from last year, your W-2 forms from work, any tax related documents pertaining to your investments, mortgage and property tax statements, receipts for charitable deductions, etc.
Once you have gathered all the information, you can determine what IRS forms you’ll need to complete your taxes. Will you need any special tax forms? For example, if you’re self-employed, or if you have complex investment income, you’ll need to complete additional forms.
“Obviously, you want to maximize the amount of money you can deduct from your taxes, while obeying the law and paying your fair share of income tax,” says Maxine Sweet of Experian, a company that provides consumers with products and resources to help them understand, manage, and protect their personal credit profiles. “The more deductions you can claim, the smaller your total tax bill will be, so it pays to know if you qualify for any deductions.”
If you’ve had any major changes in your income this year, such as an inheritance, an investment windfall or the like, you may want to hire a tax professional to help you sort through all the legalities. For those who feel they need a little coaching to get through their tax forms, a good tax preparation computer program can be useful.
It may seem obvious, but any changes in your personal life may affect your taxes. Did you get married or divorced in the past year? Did you buy a house, have a baby, or send a child off to college? Any of these circumstances can affect your tax return. If you have questions, visit www.irs.gov for more information.
The sooner you calculate your income tax, the sooner you’ll know whether you owe Uncle Sam or he owes you (or in a perfect world, that it’s a draw). If you qualify for a tax refund, the sooner you file your return, the sooner you’ll see your check from the IRS. You can even file your return online for a faster turnaround, if you don’t mind paying a fee for the convenience and speed.
Another advantage of having your taxes finished early is that if you owe money to the government, you have some time to figure out how you’ll pay. You can pay in installments, pay by credit card, or if it looks like you won’t be able to come up with the funds on time, you can file for an extension. To use an installment plan or get an extension, you still need to file the correct forms by April 15. “Before using your credit card to pay, review your overall household finances to avoid any surprises, such as exceeding your credit limit,” Sweet advises. “That review should include bank statements, credit card billing and a copy of your credit report. You can get a copy of your credit report from Experian at www.experian.com.”
After You’re Done
Once you’ve finished your taxes for this year, take some time to think about what you could do differently for next year. If you spent a lot of time tracking down your tax documents this time, create a filing system that works for you and be prepared for next year. Start using a better system now to collect important information throughout the year, and stick to it.
If you owed money this year, or if you have a huge return coming, you may want to consider adjusting your withholding amount. The goal should be to break even. While getting a refund may seem like a good deal, you’ve basically been loaning the government money at zero interest. Increasing the allowances you claim so less is taken from each paycheck means more money in your pocket each month. If you owed this year, decrease your allowances so more money will be withheld from your paycheck and you won’t have the same unpleasant surprise next tax season.
Investing in tax deferred accounts such as a Roth IRA, or in pre-tax investment programs such as a 401(k) or a standard IRA can not only help you save for the future, but can also provide benefits at tax time. If you don’t currently use these investment tools, take some time to investigate how they might work for you.
Use your return wisely. While the temptation is to consider a tax refund “found” money, resist the urge to spend it on a trip or a new sofa. Instead, why not invest it or put it in the bank? If you are carrying credit card debt, apply the amount of your tax return to paying off what you owe.
While April 15 will probably never be anyone’s favorite day of the year, a little planning and forethought can make it easier to cope.
For more information on learning about your credit, visit www.experian.com.
Courtesy of ARA Content