As we approach the annual tax deadline, you need to be ready to file and either pay taxes or (hopefully!) get a return. For so many of us, the process of filing taxes can be daunting and stressful, but with proper planning and knowledge, you can easily navigate this time of year! Whether you’re filing your taxes on time or considering an extension, here are some essential tips to keep in mind.
- Gather All the Necessary Documents: Make it a habit to collect all your relevant documents in February. This includes W-2 forms from your employer, 1099 forms for any additional income, receipts for deductible expenses, and investment statements.
- Review tax law changes or get professional help: Tax laws are subject to change – frequently – and it’s important to know what’s relevant to you or to get help. Changes in tax rates, deductions, and credits can have a significant impact on your tax responsibilities or benefits.
- Take the relevant tax credits and deductions: Tax credits and deductions can help lower your tax bill or increase your refund. Take note of all your expenses and needs that translate to various credits and deductions available to you, such as the Earned Income Tax Credit, Child Tax Credit, Solar/Hybrid car Tax Credits and deductions for student loan interest or medical expenses.
- Reduce your taxable income with retirement account contributions: Contributions to retirement accounts such as IRAs and 401(k)s can offer tax benefits depending on your income level and filing status. Review your retirement account contributions for the year and assess whether you can make additional contributions before the tax deadline to reduce your taxable income.
- Understand the how and when to file an extension: If you find yourself unable to complete your tax return by the deadline, file for an extension by April 15th to buy yourself more time. Filing an extension gives you more time to submit your return, but it does not extend the deadline for paying any taxes owed. Failure to pay taxes by the deadline may result in penalties and interest charges.
- Payment plans and set a plan for next year: As you complete your taxes for the current year, take a moment to think about how much easier this would be next year if you prepared a little in advance. Once this year’s taxes are done, sit down with financial planner to review your financial goals, evaluate your tax-saving strategies, and make any necessary adjustments to optimize your tax situation for the coming year. Collecting the documents for and walking through a plan with a financial advisor will help you next year with tracking toward your longer-term goals and having everything ready whether you file your own taxes or hire a tax accountant for filing in the future.
Filing taxes or extensions is a necessary chore but with a little planning and organization the annual process – and accounting for all your costs of living – can actually help you actually move closer to your financial goals. If you have any questions or need assistance with your taxes or preparing for a smoother process next year, don’t hesitate to reach out to a qualified financial advisor or tax professional.