If you’re like many people, the new year brings on a sense of urgency to get one’s life in order. Along with resolutions to improve one’s health, getting yourself fiscally fit is often on top of the list of New Year’s Resolutions. One important aspect of fiscal fitness is to be thoroughly prepared for tax season.
Have a designated place to collect all tax documents
When preparing your taxes, having everything handy will help keep the process moving smoothly. As documents come in from the mail or electronically, put them in one place. Many people find a simple manilla folder to be efficient for paper documents. If you are a homeowner, vacation rental owner, apartment owner, or any other property owner, you’ll want to make sure that you have a Form 1098 for each loan so that you can deduct your mortgage interest and real estate taxes. If you tacked on an extra payment at the end of the year, make sure you double check your form to make sure that it was included.
As for the electronic forms, using a label in your email program or using a specific program, such as Evernote, is an easy method for organizing your tax documents. In fact, if you prefer to keep all of your documents electronically, Evernote has a good blog post on how to use Evernote for taxes. (NOTE: We do not endorse Evernote, it is just one product that we have come across that many people have used with success.)
Decide on how you want to prepare your taxes
Many people have been using a tax professional for years and feel a bit daunted by taking on the task themselves. Then there are those that prefer the do-it-yourself method and utilize tax software programs, such as TurboTax, H&R Block, Tax Act, etc.
Of course, there are advantages and disadvantages to both methods. The cost of using software is low, they are relatively easy and straightforward with extensive step-by-step instructions. If you have all of your documents on hand, it is probable that you could finish your returns within an hour.
Although many of the software programs available have pretty extensive walk-throughs, a tax professional has the ability to ask questions about your particular circumstances. If you have a relatively complicated tax situation, a tax professional, especially one that you have worked with year after year, can save you a tremendous amount of time. And, without a doubt, hiring a tax professional will take off the burden and stress of filing your taxes.
Prepare your taxes as early as possible
As soon as you have all (or nearly all) of your tax documents in hand, prepare your taxes. The reason to prepare early is to see if further contributions will alleviate some tax burden. You are allowed to contribute and even open a Roth or Traditional IRA account before April 15 and have those contributions count towards the previous year. The caveat is that the account must be open and the contributions made before you file.
Review your tax status
Conventional wisdom has dictated that one should minimize their tax withholding so that more money is available on a monthly basis rather than getting a large sum from a tax refund. However, savings rates are so close to zero and many people find it difficult to save the modest difference in their salary from the withholdings. This means that it might be more lucrative to have more money withheld each month so that the tax refund amount can be invested in more gainful opportunities. While it is too late to do something about the 2015 tax withholdings, it’s a good time to take advantage for 2016.
As always, check with your own financial and tax consultants for their advice.
Happy filing!
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