Happy February! Spring will be here before we know it, but that means tax season is also on its way. If you procrastinated on your taxes last year, try to get a head start this time around. Taxes may be stressful, but giving yourself extra time will help you cut down on headaches and mistakes. To get started, follow the following steps in our tax preparation checklist:
Step 1: Gather Your Documents
You know that you’ll be receiving a lot of tax documents at the beginning of the year. This doesn’t stop at W-2s, either. Watch for your 1099s, insurance documents and mortgage and bank information.
Here’s a quick tax preparation checklist:
- Income W-2
- 1099-INTs from savings accounts
- Roth Conversion – 1099-R
- Health Insurance 1095-A
- HSA Distributions/HSA Contributions
- Roth IRA Contributions/IRA Contributions
- Mortgage Interest Statement – 1098
- Charitable Contributions
- Home Improvement – Energy Efficient Deductions
- Student Loan Interest – 1098-E
- Childcare Costs
- Taxes you’ve paid – real estate, state & local, & personal property
Step 2: Factor in Life Changes
Was this a year of major change for you? If you got married, bought a house, had a baby or started a business, these are just some of the life events that can affect your filings. Within the past year, did you do any of the following?
- Changed jobs?
- Changed/opened new bank accounts?
- Start a business/sell a business?
- Acquire any stock/sell any stock during the year?
- Take out a home equity loan?
- Take out student loans?
- Did you enroll for health care coverage under the Affordable Care Act?
- Gift more than $14,000 during the year to 1 individual?
Step 3: Determine How You Will File Your Taxes
There are three main options when it comes to doing your taxes: preparing them manually, using software to assist you, or working with a professional tax preparer. If your tax filings haven’t changed much in the past year, then you may not need to work with a preparer. There are some programs out there that will walk you step-by-step through the process (think TurboTax, TaxAct or H&R Block.)
But if you’ve gone through any life changes that could complicate your taxes this year, working with a preparer face-to-face can be well worth the cost.
Step 4: Assess Your Withholdings
If you get a large return from taxes each year, you might be paying too much in taxes during the year. You can combat that by increase your allowances so your pay can increase. Be careful not to withhold too much because you may end up owing come tax time.
Step 5: Contribute to Your IRA
Step 6: Assess Your Weaknesses
What’s holding you up from getting your taxes done this year? Is it trying to locate your important documents? Finding receipts for all your write-offs? Trying to make sense of new forms? Avoid those frustrations next year by making note of them this year. Set aside a folder at the beginning of the year to put all of your tax information in throughout the year, or commit to documenting your write-offs on a monthly basis. If you set smaller goals throughout the year, tax time next year will run much smoother.