5 Tips to Prepare for Next Year’s Tax Season

Few people enjoy thinking about taxes during the summer. But those who are willing to do a little prep work throughout the year can find tax time a bit less taxing. www.mylifeROI.com recommends these 5 Tips to Prepare for Next Year’s Tax Season:

1) Pretend You’re a Fortune 500 Company. Divide your year into quarters, or if it’s easier to keep track of, seasons:

• Summer – In the summer, you should start organizing your records. As of a few months ago, you actually filed your taxes. And what a relief that was. However, taxes never stop. You should make sure your filing system is intact and ready to go with the new year’s tax records, starting back in January. Make sure that the past 6 months look good and that you are ready to go for the rest of the year.
• Fall – Begin estimating your end of year annual income and taxable income. You should have a pretty good idea of your salary, hourly wages, commissions, bonuses, etc. This obviously won’t be exact, but you should have an approximate. This will let you know if you are behind or ahead on tax payments.
• Winter – The year is practically over (or is over depending on what part of winter it is!). Start preparing to file your taxes. Get all of your documents ready to go. Start gathering the different tax forms you will need. Separate receipts you will need from ones you won’t need.
• Spring – Actually file your taxes, now. If you have kept up to date over the past 3 seasons, you should be able to file relatively quickly! But, it’s not over. Continue on to “summer” and do it again!

2) Practice Good Record Keeping

What kinds of documents should you keep extra secure?

• Birth certificates for you and your family members
• Any wills that have been drafted or published for you (and your spouse)
• Stock and/or bond certificates for large holdings
• Deeds to any real estate holdings

3) Adjust Your Withholding on Your W-4

As discussed in the linked article, you usually want to adjust your w-4 to maximize your earnings, which in tail minimizes your refund or payment. The closer you can get to $0 owed the better.

There are a few thought processes:

• A tax refund is an easy way to save. It is, in a way, a forced savings plan. You probably wouldn’t have the willpower to save the money otherwise, so getting it all in one lump sum may help you apply it towards debt or towards a goal.
• A tax refund means you threw money away. Had you received the money you would have put it in an investment vehicle that pays interest. You gave the government a tax-free loan.

In the end, do what’s right for you.

4) Keep Your Receipts

The linked article will give you a lot more depth. But the gist of the article is that you should keep all important tax records filed for up to 7 years (different times for different kinds of documents).

An overview of a few of the forms you need to keep on file:

• Paycheck stubs
• W-2 Forms/1099 Forms
• Receipts for any items you can deduct if you plan to itemize
• Insurance and medical records
• Charitable records

5) Pay Your Taxes Before You File

You are required to pay your taxes. If you don’t believe me, click on the above link and see the awesome picture of Wesley Snipes.

Adjust your withholdings accordingly and make sure you pay your tax rates all throughout the year.