How To Prepare for Tax Season Year-Round
Written by
Sarah Sharkey
Edited by
Zuri Anderson
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Tax season is upon us. While it’s not the most wonderful time of the year for many, getting your taxes done by the deadline is essentially non-negotiable. The good news is that you can take small steps all year to make sure your tax season goes smoothly.
Explore multiple strategies to help you prepare for a painless tax season below.
Keep Your Finances Organized
In many ways, your tax return requires a detailed accounting of your income. If you aren’t sure what you earned in a particular year, it can make filing your taxes accurately a challenge. When possible, make it a point to keep your finances organized throughout the tax year.
For example, you might use recordkeeping software to account for all your income throughout the year. If you own a business, it’s equally important to keep track of your expenses. You’ll need to use all of those numbers when doing your taxes for the year. With all of your finances organized, it’s more likely you’ll breeze through your tax return.
Check Your Withholdings
Each paycheck, the government withholds some of your earned income to cover your tax bill. If you don’t have your withholdings correct, you’ll find out at the end of the year when you either receive an oversized refund or a shocking tax bill.
Since no one likes a money surprise at tax time, make the effort to confirm that your paycheck withholdings are correct on your W-4.
Save for Retirement in a Tax-Advantaged Account
Saving for retirement is a financial priority for many. But no everyone realizes that building your retirement nest egg in a tax-advantaged account can help you each and every tax year. That’s because contributions to certain retirement accounts lower your taxable income for the year.
Some accounts to consider include your 401(k), 403(b), traditional IRA, HSA, or FSA. For example, if you contribute $5,000 to your traditional IRA, your taxable income will shrink by $5,000. For some, this can lead to significant savings on their tax bill.
Although you can wait to make your contribution at the last minute, steadily contributing throughout the year gives you a better chance of fully utilizing this opportunity. Of course, this doesn’t mean you cannot contribute to a taxable brokerage account. But it does mean you should consider all of your investment account options when mapping out your financial goals for the year.
Watch for Changes to Your Filing Status
Big life changes are exciting. But when you experience a major change, your tax filing status might change, too.
For example, if you get married during the tax year, you’ll need to update your tax status to either married filing jointly or married filing separately. If you get divorced, you’ll need to move your filing status in the other direction.
Having a child is another life change that impacts your tax bill. If you claim your child as a dependent, you might see your tax liabilities shrink.
Consider Tax Credit Opportunities
The tax code offers many tax credit opportunities, which you may or may no be aware of. If possible, make it a point to review common tax credit opportunities in the beginning of the year.
In some cases, you can make a plan to take advantage of that opportunity by the end of the tax year. For example, if you were planning to continue your higher education, you might qualify for a tax credit that offsets some of those costs.
Takeaway
A little bit of preparation throughout the year can go a long way toward making your tax filing experience easier. As you move into the coming tax year, consider making some adjustments to how you manage your money to make for an easier tax time.
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