It’s that time of year again …TAX TIME! Some of us dread this time; so many documents to pull together, and the question of, "Will I owe money?"
When January rolls around and we see all the income tax commercials on television, we know it’s that time again. The organization of files can be daunting, but here are 5 tips you can do to prepare ahead of time.
1. Get Organized. Don’t wait until April to get organized. Throughout the year, have a folder or envelope to keep tax documents or receipts you accumulate all year. Then when it comes time to do your taxes (or when you hand them over to your tax professional), all the information you need is in one place.
2. Be Accurate. If accuracy matters anywhere, it's here! Verify your W2 is correct by looking at your last paystub. If you get 1099’s, verify those totals are correct. Verify documents you received from the bank are correct (like interest income) by logging into your bank account.
Interest paid on your home is also easy to verify. Sure, most of the time these are correct, but it's in your best interest to check right away prior to digging in to completing your tax return.
3. Check the math; yours and your tax professional. Many of us use an electronic tax program, but make sure you are entering your figures correctly. It's REALLY easy to transpose numbers. You or your tax preparer could easily mistype a number, which could ultimately put you in a different tax bracket, changing what you owe or the amount you get back. You could even end up getting that dreaded letter from the IRS explaining your mistake and the change they had to make on your behalf. Nobody ever wants to get a letter of any kind from the IRS!
4. Change exemptions. Determine if exemption should be changed. Did you owe too much last year, or did you get too much back? Uncle Sam doesn't need to hold on to your money, after all it is your money. Consider saving more for retirement. These updates can be made anytime throughout the year, not just at tax time or HR open enrollment.
5. Keep copies of everything. You never know when you might need it. Always keep records for three years from the date you filed, or seven years if you filed an additional claim after you filed your return, or filed a claim for a loss from worthless securities or bad debt deductions. I, however, recommended keeping them indefinitely.
Here’s to a successful tax season!