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7 Things We’re Doing Right This Second So We Won’t Fear Tax Time in 2018
No one wants to think about taxes.
But tax season will come again whether you are ready for it or not. Much like a dental cleaning, taxes can be much, much less painful if you tend to them throughout the year.
Summer is a great time to see whether your 2017 income taxes are on course so you can make necessary changes. Here are seven things to do now to avoid a tax disaster next spring.
1. Look at Last Year’s Tax Return
Before doing anything else, take out your 2016 taxes for a quick review. Here are a few things to look for:
- Did you file for an extension? If so, have you filed those taxes yet? As summer drifts into fall, your schedule will likely only get crazier, so quit procrastinating. Set aside the time you need to finish and submit those taxes.
- What things tripped you up? Were there tax credits you didn’t know about or documents you couldn’t find? Make notes so you don’t have the same issues this year.
- Can’t find last year’s taxes? That’s not good. You want to keep those records on hand. If you seriously cannot find them, get a copy of your prior year’s tax return from the IRS.
2. Re-evaluate Your Tax Withholdings
Unless you came up with a zero balance on your taxes, you may want to adjust your withholdings for 2017.
To Avoid Owing Money When You File Taxes
Paying after filing is no fun. It also means you didn’t properly assess your tax liability.
Look at the tax withholdings on your work pay stub, and do the math. Chances are, unless you have new deductions this year, you’ll want to bump them up.
You’ll be surprised how much $10 or $20 extra per paycheck can add up. Use a simple tax calculator to figure out how much you should be withholding.
Why You Don’t Want a Big Tax Refund
If you received a giant refund, congrats! Isn’t that fun?
Getting a big refund means you basically gave Uncle Sam an interest-free loan throughout the year. That’s money you could be investing or simply using to make your day-to-day life easier.
3. Major Life Changes? Brace for Tax Impacts
It’s time to reassess your life.
Whoa. Calm down. I’m not saying you need to prioritize all your values and accomplishments in life. We’re talking taxes here.
Take a mental snapshot of your life one year ago. Some things to consider:
- Has your housing situation changed? If you’ve purchased or sold a home, or even rented out your house, the tax implications are big.
- Did you have a baby? Or are you going to have a baby? Did your babies grow up and move out? These are all big life changes that will affect your next tax return.
- How about your job situation? If you changed jobs, you’ll want look at the implications. For example, if you got a raise, does it put you in a new tax bracket?
4. Don’t Forget Self-Employment Taxes
If you’re following your dream and have jumped into self-employment, you’ve entered a whole new world of tax fun.
Gone are the days of simple paycheck deductions to pay your taxes. You’re now looking at paying income tax plus self-employment tax. If you don’t do your due diligence, you’re in for a rude (and expensive) awakening next spring.
Take it from a former full-time freelance writer: You want to stay ahead of this game. Figure out what percentage of your income you need to set aside for taxes, and pay the IRS quarterly to avoid penalties.
You don’t have to be perfect, but do your best to estimate your taxes accurately to avoid nasty surprises next April.
If your self-employed gig is just part time — can you say side hustle? — you can help yourself by having an extra chunk taken out of your day job’s paycheck.
It’s a lot easier than trying to remember to set aside money from your part-time gig. However, if you’re making big money doing the second job, that extra money from your paycheck won’t be enough. You’ll need to set aside funds from your side gig income, as well.
5. Assess Your Retirement Accounts
You already know you should be saving for retirement, but are you maximizing your options to reduce your tax burden?
Retirement accounts and taxes go hand in hand. As you’re looking at your taxes, consider how much you are contributing toward your retirement. How long do you have before retirement? Are you saving enough? Have you received raises but not bumped up your contributions?
Essentially, any reason you can find to increase your contributions will help your tax situation, as well as your future. As long as you can afford to increase your contributions, it’s a win-win.
6. Save Receipts for Your Deductions
Every year, it’s a mad scramble to dig up those receipts you need for your taxes. Donation receipts. Business expenses. Home expenses. Next year, I’ll be more organized!
It’s next year already.
Even if you’ve done a terrible job of keeping track of the receipts you’ll need, just think how much easier it will be to pull it together halfway through the year instead of waiting until the end!
Once you get them together, create a simple system for keeping your receipts organized to smooth out the process moving forward.
7. Do You Need Professional Tax Help? Get it Now
Doing your own taxes is a great way to save some money… if your taxes are simple.
If your taxes are a bit more complicated because you own a business, rent out property or have other complicating factors, you may not want to tackle your taxes on your own. Like it or not, there is a reason tax professionals can charge the fees they do.
CPAs know what paperwork to fill out and keep up to date, along with all the latest changes in tax codes and deductions. They also can give you tips on what are legit and not legit claims, and what red flags the IRS looks for on your tax return. No one wants an audit — no one.
There’s a good chance using a tax pro can save you some headaches, as well as find enough deductions to more than pay for the fees they charge.
If your taxes are getting a little bit complicated and you think it may be time to bring in a pro, now is the time. Ask your friends and relatives in the area for a trusted recommendation. Check out online reviews on sites like Angie’s List and Yelp.
This time of year is their down time, so you’ll have a much easier time finding a CPA who’s willing to talk with you and help you out. Asking the right questions can be step one to building a mutually beneficial relationship.
Once the new year hits, tax professionals work like crazy for four and a half months. Get one while the getting is good.
A Tax Audit Now Can Save a Lot of Headaches Later
I know it’s a pain to start worrying about taxes now, but doing a midyear checkup can be a lifesaver next spring.
You’ll help yourself get organized and spot any tax errors you’re making before they become critical. Take a little time now to save yourself a lot of time (and headaches) later.
Tyler Omoth is a senior writer at The Penny Hoarder who loves soaking up the sun and finding creative ways to help others. Catch him on Twitter at @Tyomoth.