Get Ready for Next Year’s Tax Season Now
The majority of people put preparing for next year’s tax season at the bottom of their to do list once their tax return is filed. If you’re one of the many people who have been struggling the last few weeks before the deadline, you can save yourself a huge headache and a lot of time come next year by preparing now. Here are five ways you can stay ahead.
1. Have one designated space to put all of your documents that you may need when filing you’re taxes. Most people attempt to implement this but do not maintain this throughout the entire year. It is always better to keep everything which may include documents or receipts that you don’t need, as opposed to not keeping something that you may need when preparing to file next year.
2. Each year you should use your completed return to help you decide whether to adjust your withholdings or keep them the same. If you receive a large refund, you should consider increasing your personal allowances. On the other hand, if you typically owe a large amount in taxes, you may want to decrease your personal allowances to have more withheld each pay period.
A misconception among many individuals is that receiving a large refund is similar to a built-in savings account. In reality, the money that is being held each month could have earned interest in a savings account or contributed to a retirement fund, as opposed to being held by the government only to be returned to you.
If you’re struggling to figure out your withholding amount, contact a tax professional or use the IRS Withholding Calculator.
3. If marriage, children or buying a home are in the cards for you this year, you may need to adjust your personal exemptions to plan for these big life changes. The taxes you owe can vary with a change in marital status, the birth of a child, or by purchasing a home. Married couples may have a reduced tax burden if they file jointly and having a child will allow you to claim another dependent, which impacts your withholdings. It is always best to plan ahead and know what to expect.
4. If you weren’t happy with your tax bill this year, you may want to check your retirement contributions and consider making an increase. Any money taken from your paycheck that is put into a 401(k) will lower your taxable income and could result in you having a smaller tax bill. If you’re like most people, you may touch base with the person or company managing your retirement funds once a year. It may be best to review your account with them quarterly to assure that everything is inline with your goals.
5. It’s better to seek a professional opinion now when you are not up against a deadline and in the middle of tax season. A tax professional or CPA would be able to make recommendations based upon your previous return for the following year and can become a year round financial adviser. It’s important to have a comprehensive view of your financial picture so you can make better decisions throughout the year.
Any time you have a question in regards to any aspect of your finances or taxes you should consult a tax professional or seek guidance from one of your advisers.
