There are so many things to keep in mind while preparing to file taxes but in our opinion the most important considerations come down to just few categories. Focus on them and you should avoid any unpleasant surprises when the April deadline comes around.
The biggest question here is – was getting your taxes done smooth sailing or something like trying to survive a category 4 storm in the open ocean? Tax preparation is never an easy task but should be easier if you have the right approach and when you use the right tools (like TurboTax or H&R Block). First of all, establish a designated space at home for important documents so that you and your spouse always know where to find them. Create a new folder for your 2012 tax information. Yes, you won’t receive W-2s for several months but receipts for deduction accumulate daily. Don’t wait, have that organizer ready now and you will greatly appreciate it when the wealth of documents streams your way.
About the organizer, don’t just pile up documents, which only create more work when it comes to sorting them up and a chance to overlook something important. Shoebox should be absolutely an ultimate solution; nevertheless it’s better than nothing. You can get a document organizer (something like accordion folder or a little shelving unit) for as little as $10 and label it appropriately so that it’s clear for everyone what’s where. That’s money well spent, as it will save you more than one headache in 2013 when looking for need. Also, when it comes to deductions, divide the receipts into categories and add notes for yourself on a post-it note. Even with relatively few deductions during a year, a little colored sticker will be so refreshing as to details of that particular transaction. For those who mix technology with obsession for organization I recommend digital scanners for all your bills and receipts. The software that comes with it organizes them neatly, letting you easily access any category/folder created or searching for receipts by a key word.
If you want to take organization of your documents a step further, have a general list of documents you expect to receive and/or should present to file your taxes. You can separate them into categories such as income (wages, retirement, business or self-employed income, investments, interest, property or asset sale, gambling winnings, unemployment benefits), Child support received or paid, donations, and expenses related to generating income (in case of doing business). And don’t forget about deduction related to your particular activity. This way you won’t overlook any document and will have enough time to act if it gets lost in a mail.
The worst part of paying taxes for me is to realize that I owe money to IRS. For some people it might not matter whether they make sufficient withholding form their paycheck or have to start making additional payment in April. I dislike debt and prefer to have a peace of mind that I don’t owe anything tax season come around.
But this isn’t only a decision you can make based on your personality, make sure to take into consideration your current economic position. If you make enough money to make all your current obligations, perhaps you want to have withheld enough not to worry at tax time. On the other hand, if you’re experiencing economic hardship or temporary income shortfall, get as much as you can from your paycheck until your situation improves. You can always make changes to your withholdings.
Withholding depends on many factors that’s why making changes by guessing does not always work as expected. You might get closer to your goal but be still off. I found one tool that can give you a better idea how to adjust your withholding so that there are no surprises when you’re ready to file taxes. On its website, IRS provides withholding calculator that leads you through series of questions to better determine what you should do. It’s worth doing it as an exercise just to see how much you’re currently under or overpaying. Once you provide your current information, the suggestions made on the website try to help you adjust your withholding so that your anticipated tax payment is as close as possible to the real payment.
If you happen to make changes to your withholding, check you pay stub and make sure the changes took place and they were made as you requested. Don’t assume they’re done until you can see the proof. Remember that you are asking someone to do it for you, and we are all prone to making mistakes.
You may ignore the fact that planning your taxes is unimportant unless you had some unpleasant experience with it. Taxes do mark your personal finance and if not done correctly can haunt you for entire year. Have the right attitude and decide on the time you’ll have all documents ready and sorted out. Mark it on the calendar as well as the day you’ll get the taxes done. Stick to your plan. Don’t be forced to do it when you’re not ready; instead be in charge and decide yourself. Start as soon as you have all the documents this way any unexpected event that diverts your attention elsewhere, leaves you with plenty of time to finish your return comfortably. Make sure you have enough time to check you math and social security numbers, which are among the most common mistakes individuals make.
Decide what’s the best way to get the taxes done next year. Should you do it yourself, use computer software, or use services of a tax accountant? For more ideas on that check out the post on should you prepare tax returns yourself or get it done by someone else?