5 Steps to Take Now to Prepare for Tax Season
December 11, 2017
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While you’re enjoying the holidays, the last thing you want to do is think about taxes. However, tax season is just around the corner and, if you’re not prepared, you can easily end up overwhelmed and stressed.
1. Organize Your Documents
Starting in January, you’ll start receiving tax forms from your employer, banks, investment companies and even from your student loan servicer. You can lose track of all of the forms if you’re not careful, which can cause serious headaches when it’s time to prepare your tax return.
To get organized, review your return from last year. Look at the types of income you reported, what deductions you qualified for and any tax credits you received. From there, you can make a list of what documents to expect, such as W-2s or bank interest statements.
Once you have an idea of what to look for, set up a place in your home — such as a drawer or just a manilla envelope you keep at your desk — for all of your forms. As they come in, put them directly in their designated spot. If you have any business or deductible expenses, make sure you also keep the receipts and store them with the forms.
2. Decide How to Prepare Your Taxes
According to the National Society of Accountants, tax preparation costs $273 per return, on average. If you aren’t prepared for that charge, it can come as a real shock and leave you scrambling to come up with the money. However, if you do your homework now, you can find low-cost or even free options:
- Free Tax Filing: If you make under $64,000, you may be able to file your taxes for free with My Free Taxes. You can prepare your return online safely and securely, without paying a fee.
- Online Preparation: If you make over $64,000 or have more complicated taxes, online tax preparation programs may be good for you.
- FreeTaxUSA: With FreeTaxUSA, you can file your federal return for free. If you have to file a state return, it’s just $12.95.
- TaxAct: TaxAct is a robust platform you can use to prepare both individual and business returns. Basic returns are free, while more complex returns cost $25 and up.
3. Identify If You’ll Need an Extension
The deadline to file your tax return for the 2017 tax year is April 17, 2018. The deadline was postponed because April 15 falls on a Sunday, and the 16th is Emancipation Day in Washington, D.C., a recognized holiday where government offices are closed.
Tax season might seem far away, but it’s wise to start thinking now about whether or not you’ll need an extension. For example, if a loved one passed away and you’re managing the estate or will be traveling during a chunk of tax season, filing for an extension can give you six more months to get everything together and file your return.
However, keep in mind that an extension only allows you to delay submitting the return. If you owe money on your taxes, you still need to submit your payment by the April 17 deadline, even if you have an extension. Otherwise, you could end up paying penalties and fines.
4. Catch Up on Retirement Savings
If you have an Individual Retirement Account (IRA), you can make contributions that count for the 2017 tax year up to the filing deadline of April 17, 2018. That means you can catch up on contributions you might have missed. The extra wiggle room can allow you to save the maximum of $5,500 per year if you’re under 50.
As an added perk, your contributions to a traditional IRA might be tax deductible. The deduction can help lower your taxable income so you end up owing less on your return.
5. Prevent Healthcare Penalties
Although it’s too late to do anything about the healthcare penalties for 2017, you can take action now to avoid the same mistakes in 2018.
Under the Affordable Care Act, you must have a qualifying health plan or you will owe a penalty. As of 2017, the penalty for going without insurance is $695 per person or 2.5 percent of your income, whichever is higher.
If your employer does not offer insurance, you can avoid getting hit with the penalty at tax time by enrolling in a policy through healthcare.gov during Open Enrollment. However, your time is limited. This year, the deadline is December 15. If you miss the deadline, you cannot enroll in a health plan until next year, unless you have a qualifying life event like having a child or losing your job.
No one looks forward to doing their taxes. But, by taking some time now to plan ahead, you can make the process much simpler and streamlines. With some homework, you can save yourself both stress and money.