Tax day is two months away, and millions of Americans are already dreading it and will avoid dealing with it for as long as possible. But at the same time, it doesn't have to be awful. Sure, dealing with your taxes will probably never be your thing -- unless you like arcane tax laws, spreadsheets, and mathematical torture -- but there are definitely steps you can take to make it less painful.
If you want to make dealing with your taxes in 2016 and beyond easier, keep reading for some advice on what you can do today to make tomorrow's tax filing much easier to handle.
Half the battle is planning instead of reacting
The reality is, most of us don't do much tax planning at all, but just deal with what we have each year when tax day approaches. And while there's not much we can do to change what we have to pay, a lack of planning leads to procrastination. And procrastination leads to rushing to file, and that can mean sloppy taxes. Next thing you know, you miss out on deductions and credits you could have claimed.
A few things you can do every year to help avoid this:
- Review your tax and income situation from prior years and make changes to your filing status with your employer as appropriate.
- Self-employed and wrote a big tax check last year? Implement a plan to make monthly or quarterly estimated payments for better cash flow balance.
- Set up a filing system for the coming tax year now, so you have a place to put your records as you get them (see next section for more on this).
- Undergo a major change in household income (either up or down), buy a home, or have a child? Find out how that changes your tax situation, and make sure your filing status at work won't take out too much (or too little) in tax each pay period.
The bottom line is this: Not taking time to review your situation and optimize it usually means you take more time at tax season trying to get everything together.
Make it a process that's easy to stick to
Like most things in life, tax preparation is much easier if you develop the right habits. To start, there are a few things you should plan on doing every year to support healthy behaviors. One issue people routinely deal with at tax season is simply finding all of their documents. This is especially true for things that you may get routinely throughout the year, not just at or near tax time.
- Create an easy filing system for:
- Charitable-giving records
- Tax-deductible business and travel expenses
- Tax-related spending that can be deductible, such as property and auto taxes and energy-efficient home items like windows and doors that qualify for tax credits
- Tax-deductible interest expenses, such as mortgage interest
In other words, have a designated spot to stick that receipt from Goodwill or for the check you sent to the local charity. Sure, most organizations that you donate money to will send you a statement, but don't count on it, and don't let that deduction pass you by because you forgot about it, too.
There are also handy apps that can help with retaining these records, including ItsDeductible Donation Tracker, which integrates directly with TurboTax software and automatically plugs charitable donations right into your tax filing if you use that software.
Get help early
Tax filing software works great for millions of people, but sometimes it's not enough. This can be the case if your situation is complex or even if it's simple but you just don't have the time to handle it yourself. (Ever had a newborn? Pay a professional that year.)
The key here is if you are going to need a professional, you're better off finding one sooner rather than later. Not only will this allow you to take care of your taxes in advance of tax day, but it will give you time to find additional information if your professional needs it.
Furthermore, as good as tax software is, a seasoned pro may be able to identify additional credits or deductions you missed and help you avoid leaving out something important. Either way, a professional should mean less of your time versus doing it yourself.
A pro can also give you tips on getting a head start for the next year.
Put a plan together and stick to it; rinse and repeat next year
If you've ever been surprised come tax day, by having to write a big fat check or file an extension, you know what it's like to be unprepared for your taxes. If you want to avoid having that happen (or from having it happen again), a little preparation and some good habits will go a long way.
And there's no better time to start than today. What are you waiting for?