You’ve got plenty of tax time to file next year’s taxes, but will you be ready when tax season rolls around? When it comes to tax planning, it’s never too early to get started.
Taxes can be complicated, but they don’t have to be. There are several steps you can take throughout the year to organize your finances so that when tax season rolls around, you won’t be caught off guard. A solid understanding of your tax position, as well as the variables that can change it, is one of the best tools you have to optimize your tax preparation. If you’re ready to set yourself up for a less stressful tax season, consider the following tips to simplify next year’s taxes.
1. Consider How Life Events Will Impact Your Taxes
Different life events can have a significant impact on your taxes, including your tax liability, filing status, and your eligibility for deductions and credits. Some life events that affect your taxes are getting married, getting divorced, starting college, welcoming a new child to your family, and buying a house, among numerous other examples. Also, if you recently lost your job or started a new one, it will affect how you file your next year’s taxes. So, it is important to consider the upcoming milestones in your life and research how they will affect your tax obligations. The IRS website is an excellent starting point for understanding the kinds of life changes that impact your taxes. However, an experienced tax professional will be in the best position to assess your overall tax position and help you plan for your financial future.
2. Keep Records of Your Transactions
Keeping accurate records of your income and expenses throughout the year will simplify the filing taxes process, particularly if you are self-employed or own your own business. Diligent record-keeping allows you to quickly and accurately verify your total income, separate your professional and personal expenses, and identify opportunities for credits and deductions. If you don’t use accounting or tax software, it can be helpful to create a spreadsheet to store this information. You can organize your transactions by month and category to make your data more easily digestible.
3. Learn More About Credits and Deductions
Taking time to research the tax-saving opportunities available to you can go a long way in reducing your tax liability. If you plan to itemize your taxes rather than taking the standard deduction, it’s important to understand the deductions that you qualify for. This information will help you stay organized and categorize your transactions throughout the year, enabling you to identify which purchases are taxable and which qualify for deductions.
A vast array of expenses are often tax-deductible, including charitable contributions, student loan interest, certain medical expenses, and retirement account contributions. Similarly, there are numerous tax credits that can directly reduce your tax bill, including credits for child and dependent care, alternative energy use, and continuing education. While the IRS lists every available credit and deduction online, you might consider using tax software to identify the tax breaks available to you. In addition, a qualified tax professional will have up-to-date knowledge of the current tax landscape and can help you evaluate viable ways to minimize your tax liability.
It’s Never Too Early to Get Started
Filing your taxes doesn’t have to be complicated and tedious. By taking time to prepare for tax season well in advance, you can minimize your stress and maximize your tax savings. If you’re feeling confused about any aspect of your tax planning and preparation, don’t hesitate to reach out to an experienced tax professional for guidance and support.