There are no two ways around it: Few things frighten people more than the realization that it’s tax filing time. The tax code is both enormous and enormously complicated, and for the vast majority of Americans who aren’t licensed tax preparers, dealing with it can be terrifying. There’s so much to organize and prepare, all by the deadline this year, and there are pretty severe consequences if you don’t.
But don’t panic just yet. Filing your taxes doesn’t have to be scary. The ultimate remedy to the stress-inducing chaos of the tax code is knowledge, and informed tax filers are going to be able to pay what they owe ― and not a penny more ― without being gripped by terror for the first three and a half months of the year.
1. Don’t Let Audit Fear Paralyze You
Look, it’s obviously not fun to get audited. But plenty of people are audited and live to tell the tale, and, should the worst happen, you will too.
It’s also worth noting that audits are extremely rare. The IRS audits less than 1% of returns, and those all include returns that have specific conditions that increase the potential that they would be audited. Without income from a business, an earned income tax credit, rental real estate or a farm, your odds of being audited dwindle to one in 427. And even if you’re unlucky enough to still be audited, most are a simple matter of answering a few questions.
So relax. You probably won’t be audited, and even if you are, it probably won’t be as bad as you’re imagining.
2. Make a Checklist
Never underestimate the power of a basic to-do list. By creating one, you will have a clear vision of the entire task, and you’ll know you won’t forget to ask the right questions when you visit your accountant or make important deductions while self-preparing.
“Before your appointment, ask your accountant if they have a tax checklist or tax organizer for you to use,” said Michael Eckstein, EA. “If you prepare your own taxes, there are many tax checklists and organizers available for free online.”
3. Pass Along Documents Right Away
Don’t waste any time turning those tax documents over to your accountant or entering the relevant details if you’re filing your own taxes. Worrying about losing a W-2, arriving at your accountant’s office unprepared or even having to contact an employer about getting replacement documents all are ways to boost your stress levels unnecessarily.
“You are less likely to misplace them, and accountants appreciate it when you show the initiative to make the tax-preparation process efficient,” said Thomas J. Williams, EA.
4. Start Early
For that matter, don’t put off starting your taxes. Like ripping off a Band-Aid, the sooner you do it, the sooner it’s over. What’s more, it gives you a cushion to deal with any unexpected delays.
“The faster you can get your taxes done and over with, the less time you will have to be anxious and stressed about them,” said Dave Du Val, EA, of TaxAudit.
What’s more, you might even be able to get an early bird discount from your tax preparer by submitting your documents early in the season, Williams said.
5. Maximize IRA/401(k) Contributions
In the category of “good general life advice that also will make tax season less scary,” making the biggest contribution to your 401(k) that you can afford is about as good as it gets. You will set up your future for success through the magic of compound interest, and you also will reduce your taxable income so you’ll owe less in taxes. Having a steadily growing nest egg to provide for your future is a great way to reduce your money fears across the board.
6. Manage Your Portfolio Within Your IRA/401(k)
You have to pay taxes on investment income, but only when that income is realized, such as when you sell investments for profit. Any growth in your investments within the confines of your 401(k) or IRA is untaxed until you take it out, so if you’re buying or selling stocks or bonds, keep it all within the account. That won’t create additional sources of income that could complicate your return or add to your tax bill.
7. Work With a Tax Professional…
There clearly are many more options for preparing your taxes on your own than there were 10 or 20 years ago. That said, if the process is terrifying to you, having your tax returns professionally prepared could be more than worth the fee.
“Consulting with a tax professional can give you peace of mind at a real value for your money,” said Mario Constanz, the CEO of Happy Tax Service. “A certified public accountant can help you find tax deductions and credits that may not even be available on the DIY tax product you’ve purchased.”
8. … and Make Sure Your Preparer Is Licensed
Of course, not all tax professionals are the same. When you’re worried about a steep tax bill and looking for places to cut corners, going with someone who is unlicensed might seem like a great way to save a buck or two. Don’t.
“Filing a tax return with someone who does not have the requisite credentials, experience and trustworthiness will only cause you stress and money in the long run,” Williams said.
9. Use the IRS for Free Tax Preparation Help
Of course, for some people, the cost of an accountant could be out of their price range. Many people can access free help filing taxes, however. The Volunteer Income Tax Assistance (VITA) program is available to those who earn less than $54,000 a year, people with disabilities or to filers who speak limited English. And, if you’re older than 60, there’s also the Tax Counseling for the Elderly (TCE) program that offers specialized help for seniors. Visit the IRS website to learn more about these services.
10. Organize for This Year and Beyond
Chaos and uncertainty are, more often than not, what’s causing fear about your tax return. The natural remedy? Organization. Categorize your documents or create a filing system ― anything that allows you to be nimble in accessing what you need. Not only will it make filing faster and easier, but being able to see the complete picture will help you remember that this is a more-than-manageable task.
“Be proactive,” Du Val said. “Break out last year’s tax return and wrap your mind (around) the task that lies ahead of you. Make a list of all the documents you need to gather. Gather and organize your receipts, proof of payment and other documents that support the deductions you intend to claim.”
Most importantly, keep your system going. It’s one thing to get yourself ready for the next month or two. It’s another to create a system that you can keep in place year after year.
“For many of us, the worst part about taxes is getting organized,” Du Val said. “If you take the time to set up a solid system for yourself, you can reduce your stress for years to come.”
11. Don’t Wait To Meet With Your Accountant
If you’re using a tax professional, you don’t have to wait until tax season to make your first appointment. Meeting with your accountant throughout the year can keep your organization on track and eliminate surprises and anxiety come tax time.
“Taxpayers who keep up with things throughout the year have very little stress come tax time,” said Micah Fraim, CPA. “They’ve stayed current with their books and records throughout the year, so they don’t have to scramble. And they’ve had ongoing meetings with their CPA for planning — so they know exactly what kind of tax bill to expect. It’s the people who are rushing at the last minute and have no idea how much they’ll pay that kill themselves with stress.”
12. Review and Revise Your W-4
Check in with your employer and make sure all of the information on your tax forms is up to date. The IRS recommends doing this once a year, and it’s definitely worth it if it helps alleviate some tax-related stress. If you’re confident that your allowances have been at the correct levels all year, you won’t feel as much fear about an impending surprise come tax time. If you file jointly, both parties should do this.
13. Save Everything
One of the scarier moments when preparing a return is the realization that you’re missing something you really need. Save everything you think you might need.
“Organization is the key to taking stress out of the tax-return filing process,” said Professor Dewey Martin, CPA, CMA and director of the School of Accounting at Husson University in Bangor, Maine. “Save all documents that have the potential for use in the preparation of the returns.”
14. Complete Your Tax Organizer
Many accountants will send their clients a tax organizer that includes a questionnaire and checklist for necessary documents. Take the time to complete it. Getting on the same page with your accountant will make the entire process less frightening.
“There are important questions in that document that need to be answered, and it’s also a reminder to the taxpayer of what items of income or deductions have tax significance,” Martin said. “The prior year’s income and deductions should also be listed on that document to make it easier for the taxpayer to ensure completeness of their tax package for their preparer.”
15. Take Care of Yourself
Growing stress about anything, including your taxes, frequently can prompt people to stop taking care of themselves. But eating well and exercising regularly are great cures for stress. Self-care is the best way to keep your mind sharp and not to let the fear surrounding tax season overwhelm you.
16. Save Up
It’s a good policy to keep an emergency fund with at least six months of living expenses in it. You never know when you might lose your job or get hit with an unexpected expense. An unexpected expense like, say, owing a substantial sum of money when filing your taxes.
There are likely few better ways to reduce the fear about your taxes than knowing you have money to pay for any unforeseen costs.
17. Prepay When Required
If you’re self-employed, paying your quarterly estimated taxes is the best way to avoid a nasty surprise come tax season. In fact, if you owe more than $1,000 a year, failing to pay quarterly can result in penalties, according to the IRS. Your earnings don’t have any taxes withheld, meaning it can really add up if you aren’t preparing yourself adequately. Estimated taxes have set return dates, too. Filing those taxes late also can lead to penalties.
18. Proofread Your Return
Everyone can make a mistake. Before you submit your tax return, or authorize your preparer to do so, look it over.
“Proofread your return carefully — adding one extra number (for example, a $10,000 deduction instead of $1,000) can lead to a disastrous situation later,” Du Val said.
19. Get Your Budget Together
Having your personal finances in order is always a good way to relieve stress, and that’s no different during tax time. Filing taxes is a quick way to bring money fears to the front of your mind, but knowing you’re bringing in more than you spend and having a plan to save moving forward will help ease them.
20. Keep Mileage Logs
You can deduct mileage for a lot of your business-related driving. Hitting tax season armed with a detailed document laying out all of the mileage you’re claiming means you won’t have to worry about guesstimating your deduction.
“Make sure you have contemporaneous mileage logs for your vehicle expense deductions,” Du Val said.
21. Hold On to Your Tax Returns
It can be easy to look at those old tax returns and think they’re just taking up space. Don’t rush to throw them out, though. Those returns could be an important reference for future filings or necessary in the event of an audit. The IRS recommends keeping your tax returns for three to six years, but holding onto them for longer isn’t a bad idea. How about scanning them and keeping them on a flash drive in a fireproof lock box?
22. Track Those Charitable Contributions
There can be a variety of causes you end up supporting over the course of the year, many of which may be one-time donations that are easy to forget. But carefully tracking each donation and keeping records will give you some peace of mind that, should you itemize, you’ll be able to avoid paying too much in taxes.
23. Know the Lingo
Take the time to learn how to talk like an accountant. Having a grasp of the basic glossary of tax terms, and some of the more advanced ones, will make it that much easier to navigate complex instructions or communicate productively with an accountant.
“Not only are you educating yourself on a topic that directly affects you, but you will impress your accountant,” Williams said.
24. Don’t Commit Fraud
This tax tip seems obvious, but if part of the reason why you’re feeling so much fear about filing your taxes is because you’re fudging a bit, don’t do it. Sure, there’s a chance that you can get away with it, but the stress you’re feeling about breaking the law is warranted. The consequences can be pretty dramatic, up to and including jail time.
File an honest return and pay what you owe, if only for your own peace of mind.
25. Verify Document Requirements
Don’t let gnawing doubts about whether you’ve got the proper documentation for the IRS eat away at your confidence. Take the time to verify that your receipts, income statements and other documents are up to date and meet the IRS requirements.
“Keep in mind that canceled checks and credit card statements are not enough by themselves, as you need to show what the item was that you purchased or the expense you incurred, as well as the business purpose,” Du Val said.
26. Review Potential Deductions
Part of the reason why the tax code is so complex is because there’s so many different parts of it specific to certain groups of the American population. Research the available deductions. Knowing you qualify for potential deductions that could ease your tax burden will make you more comfortable when you’re filing and save you some money.
27. Prep Your Receipts
If you’re walking into your accountant’s office with a shoebox full of receipts, you’re already raising a red flag about your readiness.
“Add up your receipts according to the line number they are associated with on your tax return,” Du Val said. “Use an adding machine tape or create a spreadsheet for your quick reference. Mark all business receipts with the business purpose, who you met with, etc. Think of it as the who, what, when, where and why of taxes.”
28. Use Personal Finance Apps
One key tool in organizing your finances could be using one of the many personal finance apps available, most of which are free. The ability to have your spending and income tracked and categorized for you makes budgeting and saving much easier. And come tax time, you have a single location where you can review the entire year’s finances to locate deductions and identify any sources of income you may have missed.
29. Remember That You Can File For an Extension
If mid-April is bearing down and you cannot envision getting organized in time, there’s always the option to file for an extension that will extend your deadline by six months. This is not an extension on paying your taxes; you’ll still have to estimate what you owe (if you owe) and pay by the deadline, but it does mean you have an extra six months to prepare your return.
Also important to note is that, if you procrastinate, you’re really just prolonging your stress and fear about your taxes. However, filing for an extension is easy, and knowing that it’s an option to backstop your preparation can help to dissipate some of your terror about your tax return.
30. Keep Calm and Carry On
Simply keeping yourself grounded during tax season is the best remedy to stress and fear. Take a deep breath and remember all Americans must file. Continue employing these tips and techniques, and everything will fall into place.
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