The past year has certainly not been like others, but as we enter the last quarter of 2021, we can end this year on a high note. How?
We can take some time to prepare for this upcoming tax season.
Tax Season is Coming Up Fast
While you won’t find tax season on your usual calendars, it can be a financially significant time of year for American families.
One reason is that they may qualify for tax refunds. With the average tax refund over $2,700, that money can be a huge help for families looking to hit their financial goals.
Although the IRS has not officially announced the tax season opening date for tax year 2021, typically the IRS starts accepting tax returns for the previous year around mid to the end of January. If you prepare ahead, you can then file as soon as possible which can help you get your tax refund sooner!
The good news is that getting prepared is not as hard as you think. The key, though, is to have a system.
An Easier Way to Prepare for Tax Season
There are three crucial pieces in preparing for tax season.
The first is making sure your finances are optimized. Next, you want to review and organize your tax documents. Finally, you want to have a plan for when you’re ready to file your tax returns.
With families being busy, it’s easy to skip certain financial check-ups, but these seemingly small things can have a big impact.
Optimize Your Paycheck and Tax-Advantaged Accounts
The first place you should look at optimizing is your paycheck. Why?
You want to make sure that you’re getting the right amount withheld. We want you to have enough taken out so you don’t owe taxes without giving up too much and having to wait for tax season. You can adjust your withholding whether you want a bigger tax refund or more take-home pay, you just want to make sure you don’t owe money.
When you first started your job, you probably got a ton of paperwork and one of them was your W-4. While it may have been accurate then, you may have had some life changes that could affect your withholding like getting married or giving birth and having more dependents.
Big life events like purchasing a home this year may also have an impact on how much taxes you withhold from your paychecks since you may be eligible for bigger tax deductions like a home mortgage interest and will most likely be able to claim itemized deductions, further reducing the taxes you owe. Account for these changes when adjusting your tax withholdings on your W-4.
Investing in and selling stock has been on the rise over the past year due to the volatile stock market. If you sold any stock this year and had a capital gain make sure you take that into consideration and adjust your withholding or pay estimated taxes.
Emailing your HR contact and getting that form adjusted should be a straightforward process.
Next, you want to make sure you’re properly using your tax advantaged accounts. These can include your 401(k), flexible spending accounts (FSAs), and health savings accounts (HSAs).
Do you have kids? You can also set aside money for their college/trade school education in a 529 plan or Coverdell Education Savings Account (ESA).
As you can see, there are plenty of opportunities to optimize your accounts and lower your taxes before tax season!
Organize Your Accounts and Documents
With your tax-advantaged accounts in a better spot, we can now focus on getting your paperwork from your job, bank, and other financial institutions organized.
Having your documentation ready to go will save you plenty of time when you file your taxes.
If the thought of keeping tabs on everything is a bit stressful, let me suggest two things.
First, choose a money app or system that can pull in that data for you so you can glance at everything in one place.
I’ve recommended Mint to friends and family because it’s a highly visual way to see your banking, investments, and any debts you owe.
Another benefit is that you can import certain financial documents like 1099s from Mint to TurboTax. With TurboTax you can also import your Form 1099s directly from your financial institution. TurboTax automatically imports investment transactions from hundreds of financial institutions to eliminate time and improve accuracy.
Second, choose to look at your money once a week. Your first time may be a bit longer, but for our family finances, we’re only scanning things for about 5-10 minutes. Basically, we’re making sure nothing out of the ordinary is happening.
Reviewing and optimizing your finances will not only help you during tax season but put you in a great spot to build up your wealth.
As for documents, you may receive statements quarterly or documents specific to a tax season. I recommend having a folder system. As someone who is self-employed, I know how easy paperwork can become overwhelming in a short period of time.
During the year, I like to use color-coded folders to hold my receipts for expenses, checks and notes about deposits, and any other financial document I may need during tax season.
It doesn’t sound like a big deal, but it is very comforting to have one spot where I know everything will be.
With those documents, I can then review them to make sure there are no inaccuracies in the paperwork. If anything pops up, I can easily call or email someone to get that fixed.
Waiting until the rush of tax season can mean getting delayed. I don’t want that to happen.
You can use QuickBooks Self-Employed to track your business income, expenses, mileage, and capture receipts year round and then automatically export your information to your TurboTax Self-Employed tax return, eliminating data entry.
Make Plans for How You Want to File your Taxes
Finally, you want to have a plan for how you’re going to file your taxes.
Filing online can be a wonderful option.
I’ve been filing online with TurboTax for over a decade now and enjoy it. In particular, I love how I can tackle a section or two at a time, save, and then come back when I have another block of time. This bit by bit approach makes it less stressful.
Another thing I appreciate about TurboTax is that it asks you simple questions about you and gives you the tax deductions and credits you’re eligible for. If you have questions you can connect to a TurboTaxLive tax expert and get your questions answered. You can also have your tax return reviewed, signed and filed or you can fully hand over your taxes to a TurboTax Live tax expert. All from the comfort of your home.
I hope these tips help you get ready for the next tax season and help you easily file your taxes at tax time!