Tax season might seem luxuriously far away, but it will be here before you know it. Before the IRS begins accepting returns, it’s a good idea to audit your own situation and take action now, if needed.
Preparing now means completing your taxes will be much easier and faster later. The earlier you file, the earlier you get your refund (if you’re eligible for one) — and the sooner you can use that money to pay down debt, bolster your savings, or buy that TV you’ve been eyeing for months.
Figuring out how to prepare taxes and staying ahead of any potential issues can save you time when you’re ready to submit your return.
How to prepare taxes ahead of time
Although the IRS will not accept returns until mid-January, completing these six steps now will get you in great shape for tax season.
1. Get organized
Doing your taxes is difficult. There are seemingly dozens of forms to juggle, and you have to manage different sources of income, charitable donations, student loan interest payments, and business deductions. It’s easy to lose track of it all.
Now’s the time to sit down and list all of the forms and documents you need. Use a copy of last year’s return to help jog your memory, then write down each item and the corresponding form. As those documents come in, you can check them off and see what you still need.
Setting aside a place in your home for those forms, even if it’s just a manila envelope on top of the refrigerator, will ensure you have everything you need in one spot. Plus, you’ll lessen the chance of losing anything.
Also, think about any changes to your income. For example, if you got around to starting a side hustle this year, you’ll have to include those earnings on your return as well. If you haven’t yet, collect all of your invoices or statements and add them to the pile of tax documents.
2. Think about extensions
The deadline to file your return is April 17, 2018; April 15 falls on a Sunday, and April 16 is Emancipation Day in Washington, D.C., so tax day is moved to the following day.
Although planning for taxes now can help you prevent needing an extension, it’s a good idea to consider your chances of needing one. For example, if you’re dealing with a health crisis in the family or are recovering from the hurricanes in the fall, you might need more time to prepare your return.
Filing for an extension early on will prevent you from being late on your taxes, and will give you the extra time you need. However, keep in mind that if you owe money to the IRS, you still have to pay that amount by April 17.
3. Review your W-4
It’s a good idea to review your household information and tax withholdings now so you won’t be hit with a surprise tax bill in April.
Your filing status can play a big role in your finances, affecting everything from your tax bracket to how much federal student aid you can get. If your finances have changed this year, make sure you make any necessary changes on your W-4. If you got married this year, for example, your taxes will see some changes.
Check your pay stubs to see how much of your income has gone toward federal and state taxes. If you experienced a windfall or change in income, such as cashing out an old 401(k) or receiving a big payment for a freelance gig, you’ll owe money on that cash.
You can adjust your withholdings on your W-4 so a larger portion of your pay goes toward taxes. Paying a little more from each paycheck can be easier than paying a big lump sum come tax season. If you need help, the IRS has a withholding calculator you can use to find out how much extra money to hold back.
4. Research tax preparers and servicers
Many tax preparers have months-long waiting lists. By researching potential preparers now, you can secure your place in line and avoid scrambling at the last minute. If you don’t know where to start, the IRS operates a directory of tax return preparers who have the right credentials.
If you plan to do your taxes yourself or can’t afford to hire a tax preparer, make a list of potential tax preparation programs and services. There are many online programs that allow you to submit your returns for free. If you need help, you can also find inexpensive or free in-person support.
5. Check for deductions
Deductions can often be overlooked, but they can save you a lot of money. Review your bank statements and note any charges that can be deducted on your return, including charitable contributions, work expenses, or medical bills. If you’re in school or have student loans, there are a number of educational deductions you can claim.
Once you have identified your deductions, make a separate file for all your related receipts, tax forms, and bills. Having them handy will ensure you get every dollar you’re entitled to receive.
6. Start saving
Tax preparation can be expensive. According to the National Society of Accountants, the average cost to prepare a basic return is $176. If you’re not prepared for that expense, you might be left scrambling to find the money.
If you owe money on your taxes, you might have an even bigger shock. As you do your tax preparations, look for indicators that you’ll owe money at tax time, such as earnings from a side job or overlooked taxable items. Start setting aside money each pay period. Depositing even a small amount each week can add up quickly.
Having that money stashed away can even help you save money, since you won’t have to turn to credit cards or loans to file your return and pay your tax bill.
Start preparing for tax season now
If you’re just learning how to prepare taxes, it can seem scary and overwhelming. However, getting organized and reviewing your situation now can save you from headaches later on.
If you have no idea where to start when it comes to taxes, check out this guide for beginners.
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