Preparing for Tax Season: What to Do
As we move to the end of the year, most of us are thinking ahead toward Christmas and the New Year. Maybe you’re planning your weight loss resolutions, hope to quit smoking, or you’re considering a big trip for the family.
But as you’re gearing up to close down 2017 and move into 2018, don’t forget to start preparing for tax season. There are a number of steps you can take now to plan ahead and make life easier when the tax deadline rolls around.
Read on to learn more about the ways to gear up for tax season.
Gather Your Documents
This includes both paper hard-copies, and digital documents. We suggest organizing these documents by tax filing year, since most documents need to be retained for at least several years.
Many of these documents won’t be ready until after the new year, but here’s what you should prepare to have on-hand:
- Last year’s tax data (gather this information now)
- Regular income: W2s and 1099’s
- Other income: real estate income, dividend earnings, investment gains
- Loan information: interest paid on student loans, mortgages, etc.
- Business-related expenses: meals with clients, technology purchases, etc.
- Tax-deductible expenses like moving or medical expenses
- Tax-deductible donations to charities or non-profits
As you gather these documents, you can begin entering the necessary data into your tax returns (whether you’re going the paper route or electronic.) For example, there’s no need to wait for all of your 1099s to come in; enter them as you receive them, which saves time later.
Don’t Forget about Lesser-Known Deductions
It’s important that you deduct every possible penny from your taxable income. Often overlooked tax deductions include:
- Childcare costs (daycare, etc.) or adoption expenses
- Education expenses
- Casualty and theft losses
- Taxes paid (state and local, personal property)
These are just a few of the many possible deductions, but look over the IRS list of deductions and ensure you’re not missing any that apply to you and your family. Again, no need to wait on all of these: if you moved over the summer, you should already know your total moving costs and can enter them into your filing any time.
Get Electronic Filings Ready for Tax Season
We highly suggest filing taxes electronically, using software such as Turbotax. Filing electronically not only reduces input errors (those extra zeros won’t work in your favor!) but tax software saves information year after year, so you won’t need to re-input the same information like social security numbers, etc.
Another benefit to using tax software? You don’t need to memorize tax code or learn about complex changes in tax rules.
The software will ask you key questions like, “Did you buy a house?” or “Did you have a child?” Depending on your answers to these questions, the software will customize the tax filing based on your information.
Get started with the software early – well before your tax documents start rolling in. You can fill out key information for you and your family (like dates of birth, social security numbers, job information, etc.) and you can also familiarize with the software. Read more about electronic tax software here.
Maximize Deductions Before the End of the Year
It’s not too late! You still have time to get in a few more deductions that can benefit your tax position for the year.
Consider donations to charity. Most people feel like giving during the holiday season, and this is a great way to hit “two birds with one stone.” Just make sure that the charity donations are tax deductible, and that the organization can provide a receipt for your tax purposes.
Also, consider any last minute write-offs or business purchases which may lower your taxable income. For example, if your small business experienced record earnings and you’re expecting a big tax hit, you may want to consider loading up on the new computers you’ve been considering, which you can write off during tax season as a business expense.
Let’s face it: we all love the idea of a big tax return come springtime, but sometimes it just doesn’t work out this way. Rather than being surprised and disappointed by a less-than-thrilling tax return, set expectations now.
There are a number of calculators available online that can give you a rough estimate of what you may owe the government, or what you can expect to get back from the IRS. But keep in mind, these often require making a number of estimates and assumptions.
If it’s looking like you’ll be close to breaking even, or if you’re planning to pay out in taxes, then start setting aside the cash now (if you haven’t already.) And if you’re one of the lucky people who’s getting a refund, consider savvy ways to use the money. Spend some, save some (or save it all!)
Don’t Be Afraid to Ask Questions
Taxes, especially for small business owners, are extremely confusing. We suggest that you begin writing down your questions now, before tax season. There may be some questions that you just can’t get answered online, and it never hurts to talk to a licensed CPA.
When speaking with a tax professional about this year’s taxes, you may also want to ask them what you can do next year to further reduce your tax bill. There may be different investments to consider, or clever ways to structure to your small business. You can also talk to a tax professional if you expect to need a tax filing extension because the sooner you file for an extension, the better.
We Can Help Your Gear Up For Tax Season
Don’t delay with these key tax-filing preparation steps. You’ll be less stressed over the holidays, which means more fun with family.
Besides, who needs added holiday stress? We encourage you to get started with these filing taxes steps so that you’re well prepared by the time the deadline rolls around.
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