The more groundwork you do on your taxes in advance, the easier it will be to fill out your tax return come the big day. By completing the following tasks ahead of time you'll be more likely to max out deductions and credits and minimize your tax bill. Plus, you'll be able to file your tax return at the earliest possible date, which can both help prevent tax identity theft and help you get any refund you qualify for ASAP.
1. Make a place for tax documents
Whether it's a big fancy filing cabinet or a cardboard box, you need a place to store tax documents and other paperwork as it comes in -- preferably in an organized fashion. For example, if you're working with a cardboard box, stick some file folders in there and label the folders "medical receipts," "charitable donations," "reporting documents," (meaning documents that provide information about your taxable activities, such as your W-2 form and your 1099 forms), and so on. As the documents come in, you can just stick them in the appropriate folder. But even if you just throw everything into a drawer, you'll at least guarantee that you won't misplace any important paperwork.
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2. Decide whether to itemize
Before you complete your tax return, you'll need to decide whether you want to take the standard deduction on your return or itemize your deductions. The standard deduction reduces your taxable income for the year by a flat amount; theoretically this amount represents how much the average taxpayer with your filing status (single, married filing jointly, etc.) would have in itemized deductions. However, if you have an above-average total of itemized deductions, you're likely better off itemizing: instead of claiming the standard deduction, you list all your itemized deductions on Schedule A and deduct that amount instead.
Large itemized deductions for the 2017 tax year include the state and local taxes deduction, the medical expense deduction, the mortgage interest deduction, and the charitable contribution deduction. You can peruse Schedule A and its instructions for a complete list of all itemized deductions, but if you don't have substantial sums in these four most common deductions it probably won't be worthwhile for you to try itemizing. Add up your itemized deductions (this doesn't have to be an exact total, just a rough estimate) and compare the total to the standard deduction for your filing status. If your total itemized deductions are bigger, go for itemizing -- otherwise, just stick with the standard deduction.
3. Consider a last-minute IRA contribution
If you're eligible for the IRA deduction and didn't max out your contributions for the previous year, consider making a contribution now and classing it as a contribution for the previous year. You're allowed to do this right up until the day your tax return is due, which gives you a chance to grab an 11th hour tax break and save yourself a bit of extra money. This can be especially helpful if you're right on the cusp between two income tax brackets: making that extra contribution may be enough to push you down to the lower bracket, saving you a little on your income taxes and potentially a lot on your capital gains taxes.
4. Decide whether to hire a pro
By the time you've gone through the previous three steps, you'll have a pretty good idea of how complicated your tax return will be this year. If you've got a grand total of three tax documents and you're not itemizing, doing your own return is a fine idea. But if you've got lots of different tax documents to integrate into your return (which usually means you'll have lots of forms to fill out for your tax return) and you've decided to itemize deductions, hiring a tax pro is probably going to save you money in the long run. Not only will the expert be able to complete your return accurately, they may very well spot some tax breaks you missed.
All this prep work might sound like a hassle, but when you're spreading it out over two or three months, it'll never take you more than a few minutes at a time to attend these tasks. And after all, you have to do them at some point -- if you wait until you're actually preparing your tax return to do everything, you'll turn tax preparation into a long drawn-out nightmare (and be far more likely to make mistakes on the return). Why not make tax preparation quick and painless this year by spreading it out over several months instead of doing all the work in a single day?
