Upcoming Tax Season
While April is still months away, taking some simple steps now to prepare for the upcoming tax season can make your life (and your tax preparer’s life) so much easier. But more importantly, we at Tax N Book have seen that our clients are able to maximize their tax deductions by taking undertaking the following three measures.
1. Getting your documents in order
Getting your documents in order now (and throughout the year) is a much more efficient way of gathering your financial information together for the tax season. By saving and organizing receipts, mileage, bank statements, and other financial information little by little, you save the hassle of having to block off hours of time to do this when tax season hits, as well as lessen the chances of losing or forgetting to include that information. To get organized, we suggest:
- Keeping a folder with all of your receipts, bank statements, and other financial documents, organized chronologically.
- Organizing documents chronologically by having an envelope for each month of the year and keeping all of the receipts for that month in the envelope.
- Investing in an app or using computer software to keep track of your earnings and expenses.
- Maintaining both physical and digitized files of all your financials for the year.
Being organized enables your tax preparer to more easily parse through information to see if you are eligible for any number of deductions that are available. For instance, some deductions are pretty obvious, like office supplies and gas-related business expenses. However, there are tons of less obvious tax write-offs like medical and dental expenses, tax preparation fees, home renovation expenses, job search expenses, early withdrawal of savings penalties, volunteer work donations (including mileage), moving expenses, mortgage interest, and a slew of others depending on the situation. Instead of haphazardly presenting your tax preparer with what you think are receipts for certain write-offs, it may be better to just present a well-organized list of all of your expenses so that they can make that determination for you.
2. Be aware of the deadlines
The first deadline you should be aware of is the IRS’s deadline to submit and pay your taxes. Every year, that date falls around April 15 depending on whether that day is set on a holiday. For 2018, tax day is officially Tuesday, April 18.
If you think you will need an extension to file and pay taxes, you will need to file an extension form with the IRS. The type of extension form you file will depend on if you’re filing as an individual or entity, as well as the reason for the extension. At the moment, the IRS has yet to notify the public what day the extension deadline will be, but it’s usually towards the end of the year (for 2017, the extension deadline was October 16). There are also special rules for military and citizens living abroad.
In addition to the IRS’s deadline, your tax preparer probably has a deadline for you too. You are undoubtedly not their only customer, so enlisting their help with your taxes should happen at least a couple months in advance of taxes being due – not a couple of days.
3. Take steps to lower your taxable income
There are quite a few ways to lower your taxable income for the year, including:
- contributing to a health savings account (HSA);
- opting for a 401(k) retirement plan;
- making an additional mortgage payment at the end of the year so that you can deduct the interest;
- making a gift to charity with appreciated stocks and mutual funds instead of cash; and
- claiming home office expenses.
Before the end of the year, you may opt to contact a tax professional like Tax N Book to see if any of these (and other options) would be appropriate for you. Additionally, you should contact them if you’ll be undergoing some major life events or making big financial decisions, like getting married, starting a new business, buying a second home, or selling a rental property. The timing of undertaking these activities between this year and next can make a significant difference in terms of tax liability.
As the above tips show, it’s never too late to start thinking about your taxes. For many, it’s not always the most pleasant aspect of running a household or business. However, taking some time here and there to get organized and have a conversation with a tax professional will save you both unneeded stress while maximizing your tax savings.