Though the 2020 tax season hasn't officially begun, the IRS recently announced that it will start accepting returns on Jan. 27. And while taxes aren't due until April 15, it never hurts to get a jump start on the process. These key moves will set the stage for a smooth filing.
1. Gather your paperwork in advance
If you're planning to take the standard deduction on your 2019 tax return, then you'll mostly need to sit back and wait for your W-2 and 1099 forms to arrive in the mail or electronically. But if you're planning to itemize on your tax return, then there's a host of documentation you'll need on hand to ensure that you claim the appropriate deductions.
If you own a home, you'll need a copy of your mortgage interest statement for 2019 and records of the property taxes you paid. If you're self-employed and primarily work from home, you'll also need the right information to claim your home office deduction. That includes receipts for direct expenses like supplies and equipment needed to do your job, as well as payment details on indirect expenses like utilities, homeowners insurance, maintenance, and repairs.
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If you donated money to charity in 2019, you'll need receipts summarizing the amounts you contributed to the organizations you supported. And if you donated goods, you'll need records as well. The same holds true if you're planning to claim a deduction for medical expenses.
Gathering all of this information could take some time, so the sooner you get started, the less you'll have to worry about as the tax-filing deadline draws near. Furthermore, if you discover that you're missing key documentation (say, it got lost or accidentally disposed of), the sooner you find out, the sooner you can make calls as needed to get new copies.
2. Line up a tax preparer
If you're planning to take the standard deduction on your 2019 taxes, there's a good chance you'll be more than capable of filing your return on your own. Today's tax-filing software is designed to guide you through the process so you don't make mistakes along the way. In fact, you may be able to file your taxes solo even if you're planning to itemize.
If your tax situation is complicated, however, then it could pay to enlist the help of a professional. What's considered complicated? If you're filing returns in multiple states, own a business, and have several investment properties, then a tax preparer's input may be in order. But get moving if you want to find a good one. If you wait until tax season kicks into gear, you may find that the professionals your colleagues and friends recommend are totally booked and unavailable.
3. Figure out how you'll pay the IRS if you owe money
One big fear many filers have going into the upcoming tax season is owing the IRS money on their 2019 returns. If you haven't adjusted your withholding since the major 2018 overhaul, that's a distinct possibility. And while you don't have to pay the IRS its money until April 15, the sooner you come up with a plan for doing so, the less stressed you'll be.
Some strategies in this regard? Cut back on spending effective immediately to free up cash on a weekly basis to put toward your tax bill. If you dine out less frequently, buy yourself less entertainment, and minimize your travel costs by taking public buses over rideshares, you might, in the course of the next 12 weeks, eke out enough savings to cover your tax obligation.
Getting a side job is another viable option. If it's something you're not interested in doing long term, at least plug away for the next few months so you're able to pay the IRS what you owe.
Another option? Rather than work hard to save money so you can write a check to the IRS, see if putting that cash into your 2019 IRA helps whittle down your tax debt. You actually have until the April 15 tax-filing deadline to fund last year's IRA, so if you didn't max out, you can try contributing to that account and seeing if doing so wipes out your tax obligation. The money you put into a traditional IRA is tax-free, which means the IRS can't tax you on that portion of your earnings. If you manage to squeeze an extra $2,000 into last year's IRA and you're in the 24% tax bracket, you'll effectively eliminate $480 of your tax debt, all the while setting funds aside for your own future.
Though you may not be ready to focus on taxes just yet, a few moves on your part could make the upcoming season far less painful. And that's reason enough to push yourself to get started.
