I know, I know. It’s not even January yet. Taxes are most likely the last thing on your mind. But Tax season is right around the corner and it’ll be time to file before you know it.
Tax season is typically accompanied by a feeling of unease, anxiety weighing you down like a heavy rock in the pit of your stomach. Here’s the good news: there’s no need to be apprehensive about tax season creeping around the corner. If you think about it, it can’t really creep up on you if you remind yourself it’s coming. That’s like someone trying to sneak up on you and scare you when you’re staring right at them – it won’t work.
If you prepare yourself for the upcoming tax season, there’s no reason for it to startle you or feel you with anxiety. It comes the same time every year and all you need to do is prepare yourself beforehand.
Thankfully, we‘re here to tell you everything you need to know about preparing for tax season 2019 and ensuring you get the best refund you possibly can.
Gather All the Necessary Receipts and Documents
If you plan to itemize deductions, it’s best to gather all of your receipts and documents as soon as possible. You don’t want to be scrambling for all of the necessary papers days before filing. It would also help if you set aside a specific folder or box to keep your receipts and documents in so next year you will be even more organized and prepared.
The IRS doesn’t require you to send in your receipts and documents for deductions, but you will need them if you are audited.
Track Down Your 2017 Tax Return
You usually need information from the previous year’s tax return when filing your taxes each year. Make sure you know where to find it when filing time comes. Whether it’s a digital copy or a physical one, try to keep all records of previous tax files in one place. If it’s digital, be sure to backup your files in the case of a crash or accidental deletion.
You also want to ensure you review your 2017 tax return before filing. If there were any problem areas last year that were extra complicated, try to brainstorm how you can simplify the process and better prepare yourself for this next tax season. This could mean being better organized this year, filing earlier in the year, or even deciding to get professional tax help instead of doing taxes yourself. Whatever it may be, plan to make your taxes as easy as possible for yourself.
Check Your Filing Status
Review your filing status from the previous year and determine if there have been any life changes this past year that will affect your filing status for your 2018 taxes. If so, be aware of how you plan to file for 2018’s taxes and if there are any additional changes you need to make. For example, if you got married in 2018, you might choose to file jointly with your spouse instead of filing as single.
Review Your W-4 Form
What you put on your W-4 form largely affects the amount of your tax refund. If you prefer having a larger paycheck throughout the year, you can choose a smaller tax deduction, which will result in a smaller tax refund. Or, if you prefer having a larger tax refund, you can choose a larger tax deduction and therefore, you will have smaller paychecks throughout the year.
Depending on your finances, one choice may be better than the other. Review your W-4 and see if the tax withholding you have right now is working for you. If not, talk to an employer about changing it so next year, it will better fit your finances.
Prepare Yourself for Any Taxes You May Owe
Not everyone will get a tax refund. Many will actually owe money in taxes after filing. Your W-4, income, and a multitude of other factors will determine whether or not you will be owing taxes or receiving a refund. Look into your tax preferences and determine if you will owe taxes for 2018. If you will likely owe on your taxes, make budgeting plans to ensure you can pay the amount owed. You don’t want to be caught off guard when filing and be unprepared to pay the taxes owed.
Max out Your Retirement Contributions
In 2018, tax laws raised 401(k) contribution limits from $18,000 to $18,500. This increase gives you the option to put in a little more money into your retirement plan every month throughout the year.
Because 401(k)s aren’t taxed, you want to contribute a reasonable amount that works for your budget but will also give you what you need in retirement. Especially if your employer matches up to a certain point, you want to take advantage of the extra money you could accumulate. With Social Security Trustees estimating that social security benefits will run out by 2034, the average person needs a lot more money than previously anticipated to survive in the upcoming retirement years.
Take into Account Charitable Donations
Charity donations are tax deductible so you want to ensure you keep track of any necessary documentation if you have donated. If you haven’t donated to a charity yet this year, consider doing so. It will help someone in need and it will also give you a useful tax deduction.
Be Aware of Any New Tax Rules
In December of 2017, The Tax Cuts and Jobs Act terminated personal exemptions starting in January of 2018. This means that standard deductions are increasingly higher, according to The Nest: “The standard deduction for 2018 is $12,000 for single filers, $24,000 for married couples filing jointly and $18,000 for those filing as head of household.”
Always make yourself aware of any new tax laws that may affect you when filing.
Plan What to Do with Your Refund
Depending on your finances, what you do with your refund could change each year. Is there a debt you need to pay off? Is there a vacation you want to use your refund for? Do you want to save your refund money for an emergency? Take a look at your finances and determine what your refund should go towards. If you want to put it towards bills but you also want to use it for something fun, there’s always the option to split the refund up. For example, you could put the majority of your refund towards your most pressing bill or debt and you could a small part of your refund aside for a small splurge like a brief vacation, a home improvement project, or just a day getaway somewhere close to home.
There are so many possibilities for tax refund planning and spending; just make sure to consult your budget first so as not to wrongly spend your refund and make your finances suffer.
Check Your Credit
Regardless of what time of year it is, you always want to know what your credit score is because it could affect all of your finances, even your taxes. Use tools like credit.com to check your credit for free and to make sure everything looks okay before filing your taxes this next year.