Already Filed Your Taxes? Five Things To Do Right Now for Next Year Before You Forget
Tax time a long-lost memory already? Here are five things you can do right now to make the process easier next year.
1. Save your files. You’ve input your data into TurboTax, and you won’t have to do that again if you store your TurboTax file in a safe place so it will be available next year. Store a copy of the TurboTax file on a media separate from your computer: burn it to a CD, copy it to an external drive, or upload it to your ISP’s storage space. That way, if your computer crashes you’ll still have the TurboTax file. Or, just use TurboTax Online Basic or above and have your return saved year-over-year.
2. Make document gathering easy. Wouldn’t it be nice if you could open a file and everything you need to prepare your tax return is there? Here’s a simple way to make that happen. Prepare a file and label it Current Tax Info, and tuck it into your desk drawer. Now, every time you see something during the year that’s tax-deductible, drop it into the file. Make a donation with your credit card? Circle the donation on the statement, then drop it in. Property tax bill paid? Drop it in. Sorting the data into categories at the end of the year will be easy if it’s all in one place.
3. Consider Quicken. Is this the year you start keeping your records electronically? Having the year’s transactions on Quicken can make tax preparation simple as you transfer the files to TurboTax with the press of a button. Getting started on Quicken involves a bit of a learning curve, but it’s not difficult if you stick to the basics at first, mastering those before you explore the other nifty tools that Quicken provides. Or, if you prefer free online money management, try Mint.com.
4. Avoid a big refund. The fastest way to get your refund is not to let the government have your money in the first place. It’s easy to adjust your Form W-4 withholdings right now, while you are thinking about it. Download the W-4 form from http://www.IRS.gov, and using your tax return data fill out the simple withholding computation schedules. Once you see how much your net pay changes, tuck the difference into a savings account or better yet, increase your 401(k) contribution. That way, you’ll save it rather than squander it away.
5. Reduce underpayment penalties. If you are self employed, you don’t have taxes withheld from your income. But the IRS still expects you to pay at least 90% of your taxes during the year through estimated tax payments. If you failed do so last year, you paid the price with a big tax bill and penalties due on tax day. Don’t let that happen again. Compute estimated taxes due using tax software and simply fill out forms, and send them in your payment on the prescribed due dates. Even if you don’t have enough to pay the complete installment, paying what you can will reduce the taxes and penalties next April. Simply cross out the printed number on the form and write in the amount you are paying.
Finances don’t top everyone’s list of favorite things to do, but by following these tips now you can make your burden easier next year.