3 Tax Planning Strategies For Tax Season
It’s a painful realization that the most wonderful time of the year is soon followed by the most-dreaded time of year.
If tax time is typically something you dread, the below steps should make it easier to manage. These tips will help you to get a start on your 2011 taxes and to implement a better system to make your 2012 tax information even more of a breeze to pull together.
Rounding Up The Paperwork
Collecting your receipts and other relevant financial information for tax preparation is the activity that usually takes the most time. In this step, you’ll be pulling together all of your records for income statements, bank statements and receipts. If the majority of your information is available online, your task might be easier because you can copy and paste the relevant information onto a single document.
Separate all items into “income” and “expenses” documents. Don’t forget that “income” includes gambling winnings and interest earned on your bank accounts and investments. Even if you don’t typically itemize your deductions, it’s worth rounding up potential write-offs for the “expenses” category. Don’t overlook small items, such as charitable contributions and uncompensated business travel, including gas mileage and meals. Tax payers commonly overlook the same potential income tax deductions, according to Fivecentenickel.com.
Whether you do your taxes on your own or someone prepares them for you, organize your paperwork the same way. Get a binder and print out your “income” and “expenses” documents and store your receipts along with the documents. You’ll also want to include your retirement savings, mortgage and property tax statements.
For Next Year
Create a system that helps you to track all of your income and expenses more thoroughly. This can be as simple as an excel spreadsheet that you use to track your expenses over the year. You can also use a software or web-based program such as Mint or Freshbooks.
Should You Do It Yourself Or Outsource It?
If you are up to the task of preparing and filing your taxes, there are several online and software based programs available to assist you. Turbo Tax, H&R Block and TaxACT are a few of the most popular programs available. (For discounts on TurboTax tax preparation, check out these TurboTax Coupons. For discounts on H&R Block tax preparation, check out these H&R Block Coupons.)
If you’ve decided that you want a professional to do your taxes, keep in mind that you will still need to make the effort to properly gather and organize your tax documents. Not only will this probably save your accountant time (and you money), it will allow your accountant to be sure that all your bases are covered.
If you don’t have someone to help you prepare your taxes already, take some time to interview a few accountants before making your final decision. You want to make sure that you get someone you trust to prepare your taxes since there are financial and legal repercussions for incomplete or inaccurate tax reporting. The pool of income tax preparers includes CPAs, tax attorneys, Enrolled Agents and national tax services such as H&R Block. Keep in mind that there are benefits and drawbacksto using each of these services so make sure to do your research ahead of time. (For more information on your tax preparation options, see 3 Options For How To Prepare Your Income Tax Returns.)
For Next Year
Are you too strapped for time to interview multiple tax preparers this year? Make time next year by starting now. Ask friends and family for their recommendations and don’t settle on the first person you interview. After all, the right tax preparer could make a difference between thousands of dollars in unclaimed expenses over time.
Don’t Neglect Your Retirement Savings
One of the more benevolent qualities of the Internal Revenue Service during tax time is that you are allowed to make a retirement contribution to an IRA before Tax Day and have it count toward your previous year's taxes. This can help offset some of your tax burden for the year. (For more information on IRAs, see What You Need To Know About An IRA Investment.)
If you are under 50, you can contribute a maximum of $5,000 to a traditional and/or Roth IRA. If you are over 50, the limit is $6,000. For more information on these rules, visit the IRS website here.
For Next Year
It’s in your best interest to make regular contributions toward a retirement savings rather than one large lump sum because of dollar cost averaging. If you’re not already doing it, set up an automatic weekly or monthly payment to fund your IRA.
Paying taxes is one of the few constants in life. Rather than gritting your teeth and complaining, take the opportunity now to make the process a little smoother next year (and every year after). And if you still hate it, turn on a little music, fix yourself a snack and remind yourself that this “wonderful” time only comes around once a year.