How to Tackle Tax Season

How to Tackle Tax Season

For many people, tax season is the most stressful time of the year. With the April tax deadline looming, chances are you’re feeling overwhelmed. Why does the tax season have to be so, well, taxing? The truth is that it doesn’t have to be.

With these tips for how to tackle tax season, you will stop stress in its tracks and conquer your taxes with confidence. Changing tax plans and general misinformation can make doing your taxes confusing. Rather than getting frustrated, use these tips to make a plan that will save you countless headaches and, perhaps, even a few bucks.

While it will probably never be the most wonderful time of the year, these tips will help keep tax season from being the worst time of the year. A little organization and timely decision making can go a long way to keep you afloat during this stressful season.

Get Organized

The sooner you get organized, the less likely you are to feel stressed about taxes. There’s nothing like a looming deadline to kick your anxiety into overdrive. But, what’s the first step to getting organized? 

Forbes contributor AJ Smith advises gathering all relevant documents and information. The perfect time to start is upon receiving your W-2 from your employer. With your W-2 in hand, you can begin collecting receipts for business, medical and education expenses as well as proof of charitable donations you made during the year.   

In addition, you will need to locate last year’s return, any relevant property or real estate documentation and documentation of investment earnings and interest payments. All of this information is vital to preparing a complete and accurate return. FreshBooks contributor Janet Berry-Johnson reminds people to contact the issuer if they haven’t received a document by Jan. 31.

As you’re getting organized, Berry-Johnson recommends setting aside a designated place for collecting tax records and other essential paperwork. Taking time to establish even a simple filing system will ensure future tax seasons are less stressful.    

Decide Who Will Prepare Your Taxes

Once you’ve gathered all relevant documents and information, you have an important decision to make: who will prepare your taxes? If you decide to seek out a professional, the first few months of the year is the best time to find someone. Aim to beat the rush of other clients asking them to prepare returns.

Berry-Johnson, who is a CPA herself, advises looking for an experienced tax professional who is a certified public accountant, an enrolled agent or a tax attorney. Although their fees will be higher than you’ll find at tax prep pop-up shops, the higher price tag means greater value such as being able to contact them throughout the year for advice.

Because the advice of a tax professional is so beneficial, you may want to prioritize paying for their services. Instead of waiting until tax season to find the cash, look for ways you can start saving money now such as examining your energy bills. By assessing how and where you’re spending money, you can rectify budgeting mistakes and free up money for invaluable services like those of a tax professional.

However, not every person can afford the help of a tax professional not every situation requires one. Thanks to user-friendly software programs, these days, it is more possible than ever to prepare your taxes yourself and prepare them properly.

If you plan on preparing your taxes yourself, you’ll need to decide which software program you’ll use. Options range from free to deluxe packages. Americans earning less than $64,000 in adjustable gross income might want to consider the IRS Free File program, according to Smith. Whatever your adjustable gross income, it’s imperative to give yourself time to do some research in order to find the software program that best fits your needs.

Make Sure All Your Expenses Are Recorded

Whether you decide to prepare your own return or work with a tax professional, you will need to spend time making sure you’ve recorded all deductible expenses. Every deduction reduces your taxable income, so it’s crucial not to leave any on the table. According to Smith, deductible expenses could include:

  • Work-related travel or accommodations
  • Debt interest
  • Charitable donations
  • Moving charges
  • Costs related to job hunting
  • Home office expenses for the self-employed

Once you’ve added up qualifying deductible expenses, you should compare the total to the standard deduction for your filing status. With the numbers in front of you, Smith asserts you will need to decide which option is best for you. Working with a tax professional can ensure you make the most of potential deductions, according to Berry-Johnson.

As you’re amassing your expenses, Berry-Johnson reminds people to maintain records to support the business use of a service or item. Many people rely on bank statements for recording their expenses, but if your return is ever selected for an IRS audit, a bank statement may not be enough to prove that it was a business expense. Recording your expenses for receipts (and saving those receipts) is preferable.

Fiscal Tiger notes that itemized deductions are generally only used by businesses, freelancers, and people working from home. If you fit into one of those categories or have reason to believe that the number of deductions you can take is greater than the standard deduction, undergoing this long and sometimes more complicated process is worth it for the potential savings.

It’s important to take advantage of every opportunity to save, especially for entrepreneurs and other innovators. Since the 2017 tax reforms, the Northeastern University D’Amore-McKim School of Business reports that the average individual tax refund has shrunk by 16%. Self-employed individuals must retain as much capital as possible in order to have resources for future innovation.  

Before You Submit Your Return

If recording your expenses left your head spinning, you might be tempted to just submit your return and be done with it. But, before you do, Smith writes that it’s best practice to review each page carefully. To not do so could result in reporting something inaccurately or missing out on a credit.

Smith shares that one of every five eligible workers fails to claim the valuable Earned Income Tax Credit. You don’t want to miss out on any opportunity to reduce your tax liability. Other common credits many Americans qualify for include:

  • Child and Dependent Care Credit
  • Saver’s Tax Credit
  • Premium Tax Credit

In addition to double-checking potential credits or exemptions, you may also want to consider last-minute retirement contributions. According to Smith, contributing to a retirement fund could lower your tax bill as funds are either partially or fully deductible through the Retirement Saver’s Credit.

Like contributing to a retirement account, following these tips can provide peace of mind during a traditionally stressful time. A timely, organized approach will keep anxiety at bay and help you tackle tax season.

Image Source: Unsplash

Latest posts by Frankie Wallace (see all)
Bookmark and Share
Spread the love
  •  
  •  
  •  
  •  
  •  
  •  

Share your thoughts: