TAX PREP TIME
Yes, really. Get ready for next year so you don’t flail about yet again
With tax season finally over (unless you asked the IRS for an extension), this is a good time to reflect on what you can do for next year in order to make preparing your returns more pleasant. Admit it: You waited until the last minute again and fumbled about looking for all the documents you needed.
Preparing tax returns, gathering the necessary documentation and doublechecking that everything you filled out is correct can stress out even the most efficient person. And let’s face it, we could all stand to be a little more organized.
Tax time is a long way off, but you’ll feel more relaxed knowing you have everything in hand for next year. Here are a few of my favorite ways to reduce the stress and time spent on tax organization and financial documentation in general.
1. Determine whether to itemize or not
As an individual, you basically have two options — itemized deductions or a standard deduction — in how you want to file your individual 1040, and making that decision now will help you figure out what you need to save and keep track of during the year. One thing to keep in mind is that not every dollar you spend will be deductible — for the 2017 tax year (filing in 2018), the expenses you are seeking to itemize must exceed 10 percent of your adjusted gross income.
Another thing to remember is that everyone, whatever the filing status, is eligible for a standard deduction. For single filer taxpayers, the standard deduction is $6,300 — it is important to work with your CPA or tax professional to make sure you do not end up getting less. Fortunately, the IRS has a form that helps you figure out if you are better off itemizing or taking the standard deduction.
If you choose to itemize your deductions,
you will generally have to keep track of more documents during the year.
Some of the most common itemized tax deductions include, but are not limited to, medical expenses, charitable contributions, state and local taxes, foreign taxes, mortgage interest deductions, mortgage points, health insurance if you are self-employed, alimony and losses related to natural disasters. There are many more options out there, so be sure to work with your tax adviser or do your research to stay current.
2. Document business expenses
In general, if you are running a small business or startup and are trying to claim certain items as business expenses during the year, you are going to have to justify these expenses to the IRS. Always save receipts or track any items you think you might want to claim as a business expense. Possible business expenses include accounting fees, business travel, postage, website design, utilities and parking — among many others.
You can create a folder to save emails for tax time or make a PDF of all business receipts and store the original and digital copies. Do not forget to back up your records, either manually (with an external hard drive) or with a cloud service provider.
3. Track your donations and dues
If you donate to different charitable organizations and groups or pay dues for professional organizations, which can range from animal rights groups to dues paid for realtors and even CPAs, you might be able to take that contribution, or a portion of it, as a tax deduction. You will either receive an email at the end of the year letting you know how much you donated or a receipt explaining how much of your payment or contribution is tax deductible.
In my experience, these organizations are good at providing this documentation. But if you haven’t received your documentation by the end of January, I would follow up with an email or phone call.
4. File your finance documents
We all get way too many emails and snail mail during the year, but taking a little time to file financial statements can save you a lot of stress during tax season. Bank e-statements, credit card e-statements and retirement account information can be stored in a tax file in your inbox. This also will help keep your inbox clear and avert the potential for accidental deleting.
Papers can go in a folder that is clearly marked and kept in a safe place.
5. Know the tax dates
April is tax month, but there are other dates that are important during the year. Quarterly taxes for your business, for example, are due the 15th of April, June, September and January, so make sure to file and pay if you need to.
Lastly, you should have received all of your tax documents, including W-2s and any 1099s, by Jan. 31. If you are missing documents, be sure to track them down. Your outreach efforts might include your IRA program manager, former employers or companies you did consulting for during the year.
Sometimes the most painful time during tax season is opening a box or folder full of documents and trying to make sense of it. Taking some time during the year to get financially organized can really pay off. And don’t forget to file early to get your refund right away and to decrease your chances of fraud.
Tax time is a long way off, but you’ll feel more relaxed knowing you have everything in hand for next year.