At least one out of every three tax filers waits until the very last second to address and finish their income tax filings. It doesn’t have to be this way, and in many cases these folks make a lot of mistakes in the rush to file before the deadline that are avoidable. Even now, with a few months left, there is still plenty one can do to plan ahead and prepare for tax filing instead of waiting for the last second. Here are eight easy tips that will save you lots of headaches and surprises:
1. Figure Out Your Filing Status- Are you single or married this tax year? That’s an easy question for many. But if things changed due to a marriage, divorce, separation or passing, then obviously your status will change for the filing period. Identify what status you will be listing for this filing period early because it has one of the biggest ramifications to your filing.
2. Use 2019 as a Template – In most cases your tax status and information hasn’t changed much from the previous year. So using your 2019 tax return is a really good way to not forget anything and follow it as a path for your 2020 tax return. The items that have changed will pop out pretty quick because you’re familiar with the recent changes versus trying to remember everything that hasn’t changed.
3. Get Help- Even if you’re going to ultimately work with a tax professional, using a tax software now helps you get all your paperwork straight and in order, and have your questions answered. Your preparer will appreciate the organization, and you’ll get your money’s worth in an efficient appointment.
4. Go Digital to Stay Organized- It’s far easier to work through lots of tax documents when they are scanned and organized by topic or deduction type. You can do this on your own, create a digital folder on a flash drive, and have everything ready for your tax appointment or when you prepare your own return. Most finances with a bank, credit card company or even stores can be downloaded, giving you most of your transactions in the year when complete.
5. Hunt Down All Your Charitable Donations- People give away a lot of stuff throughout the year, and most of that counts as a tax deduction. But you can only claim it if you have proof. That’s typically in the form of a donation receipt. Many people have them, but they’re stuffed in drawers or file piles. Dig them out and you’ve scored easy reductions to any taxes owed.
6. Prove Your Deductions- You should never take a deduction on a tax return simply because you think you’re eligible. There should be a document in your supporting file that objectively proves the deduction is valid. Whether that’s a receipt, a proof of address, a membership or whatever the category, you want your paperwork straight. In an audit there won’t be time for guessing; either you have the proof or you don’t.
7. Catch Up on Retirement Savings- One of the neat things about retirement savings is that you can still make adjustments for the prior year up until you file your tax return. So if you have more room for 2019, take advantage of it and post your retirement contributions to the 2019 year, even if it is the beginning of 2019. This maximizes your deposit ability for the next year and puts a bit more away for retirement. IRAs, for example, max out contribution deposits at $6,000 for those under 49 and $7,000 if older. So if you have only $2,000 in so far for 2019, put the last minute adjustment to 2019 and save space for 2020 if you get a big windfall next tax year.
8. Avoid the Estimated Tax Penalty- For those on the higher end of tax brackets who earn their income independently, estimated tax payments are a must. This is how the IRS gets the equivalent of withholding from these folks throughout the year. If you under-estimate these payments, it can be extremely painful. So use the beginning of the 2020 year to plan out what you need for estimated payments. Maybe you can use your 2019 refund to make advance payments and get it out of the way for the next tax year early.