6 Essential Steps: Your Definitive Checklist for Tax Filing
Tax season has come around again. It's never fun, but you've gotta do it. So make sure you're on your tax-filing a-game!
Happy tax season! Filing taxes may not be the highlight of your year, but they’re a guarantee. Here are some tips to help you get the job done this April – and even give you a head start on next year’s taxes.
Step 1: Gather Your Documents
You know that you’ll be receiving a lot of tax documents at the beginning of the year. This doesn’t stop at W-2s, either. Watch for your 1099s, insurance documents, and mortgage and bank information. Self-employed? You’ll also need contractor information and business expenses, so gather that information well in advance.
Here’s a quick checklist:
- Income W-2
- 1099-INTs from Savings Accounts
- Roth Conversion – 1099-R
- Health Insurance 1095-A
- HSA Distributions/HSA Contributions
- (Roth) IRA Contributions
- Mortgage Interest Statement – 1098
- Charitable Contributions
- Home Improvement – Energy Efficiency Deductions
- Student Loan Interest – 1098-E
- Childcare Costs
- Taxes You’ve Paid – Real Estate, State and Local, and Personal Property
Step 2: Consider Your Year
Does this year look exactly like last year, or did you experience major changes like getting married, buying a house, or having a baby? All of these things can lead to changes in your filings, so prepare for that ahead of time. It can also affect other people’s filings, so get that sorted out in advance as well. Take a look at the questions below. All can have an effect of how you prepare your return. Did you…
- Marry or divorce?
- Change jobs?
- Change or open new bank account(s)?
- Start or sell a business?
- Acquire or sell any stock during the year?
- Take out a home equity loan?
- Take out student loans?
- Did you enroll for health care coverage under the Affordable Care Act?
- Gift more than $14,000 during the year to one individual?
Step 3: Determine How You Will File Your Taxes
There are three main options when it comes to doing your taxes: preparing them manually, using software to assist you, or working with a professional tax preparer. If your taxes are more or less identical to what they were last year, then you may not need to work with a preparer. There are some top-notch tax programs out there like TurboTax that will walk you through the process step-by-step. But if you’ve gone through any life changes that could complicate your taxes this year, working with a preparer face-to-face can be well worth the cost.
Step 4: Reconsider Your Withholdings
Do you usually get a large return from taxes each year? That’s because you’re paying too much in taxes during the year. Increase your allowances so your pay can increase. Be careful not to withhold too much because you may end up owing. It’s smart to increase your 401(k) contribution when you increase your allowances. That way the money you were withholding gets deposited into your retirement account. Many people end up spending their return on frivolous things. What better use than to have your return be allocated to your retirement. If it’s the end of the year and you believe you may have a large return, how about doing a Roth IRA conversion? Another way to put good use of the money you set aside. It must be done by December 31 in the year that you file for.
Step 5: Contribute to your IRA
This is an eleventh-hour task that can still count for this year’s taxes. So even if you’ve seriously procrastinated on this step, you can still do it right before you send in your taxes in April.
Step 6: Assess Your Weaknesses
As you go through the tax process this year, pay attention to what’s slowing you down. Is it your receipt system? Trying to locate certain documents? Waiting too long to get started on your taxes? Whatever it is, use that to make your system simpler and more efficient next year.
Throwing everything together at the very last minute is guaranteed to slow you down. So if you’re prone to procrastination, try setting to-dos every week to hit your deadlines on time. Face the tasks head-on and you’ll be well-prepared come April.