How to Prepare For Next Year’s Tax Season Now
Newsflash: Worrying about your taxes won’t make the annual process of gathering all of the necessary paperwork and filing on time any easier. What can actually help though, is putting a simple plan in place now to make sure you are as prepared as possible for next year’s tax season.
Whether or not you usually hire a tax pro to prepare your return, it pays to be prepared ahead of time. After all, the more time your tax preparer has to spend making sense of your financial records, the more money you’ll owe for their labor. And many tax preparers charge more the closer it gets to April 15th, which is why it’s vital to start early and gather your materials well before the filing deadline.
This guide can help you prep for next year so you can sail through tax season as quickly as possible with or without the help of a professional.
Create a Filing System
If you don’t already have a filing system in place for taxes and other important documents, now is the time to create one. This can be as simple as setting aside space in a filing cabinet or an expandable paper folder to keep everything you’ll need in one spot. If your filing system consists of a shoe box, you might want to consider a small upgrade to a tabletop file box and hanging folders. The time you save not having to plow through mountains of paper receipts and digital clutter later will make the small expense totally worth it. And you never want to have to ask yourself “Did I accidentally throw that important document away?”
And if organization with your finances is something that you want to work on, a little one-on-one coaching can be just the thing to get where you want to go. The FinanceFixx 8-week budgeting course will walk you through the ins and outs of budgeting, saving, organization and so much more — so your stress level come tax time next year is non-existent.
Adjust Your Withholdings Now
If you weren’t happy with this year’s tax outcome — if you ended up owing money when you would have preferred a refund — then now is the time to adjust your withholding information with your employer. Fortunately, it’s easy. Just contact your Human Resources Department and tell them you want to adjust your withholding on your W-4 form.
They can give you a new form, and you can fill it out appropriately, based on what the IRS’ withholding calculator (and/or your tax accountant) recommends for your situation. This one step can make a big difference on next year’s returns.
Gather Your Old Documents
With your new filing system in place, it’s wise to go ahead and gather last year’s tax returns and place them in the file, or make sure you have a digital copy at the ready. This old information will give you (or your tax preparer) a good place to start next year because you’ll likely qualify for some of the same deductions or write-offs you received last year, and the info can help you calculate this year’s return.
Identify And Track Deductible Expenses
With a higher standard deduction in tax year 2023 ($13,850 for single filers and those married filing separately, $27,700 if you’re married filing jointly and $20,800 for heads of household), many taxpayers who previously itemized may no longer find it worthwhile.
However, if you think your itemized deductions may exceed the standard deduction ceiling mentioned here, gather documentation on these items throughout the year and save them:
- Mortgage or home interest paid (Form 1098)
- Real estate and personal property taxes paid
- Expenses associated with the purchase or sale of a residence
- Medical, eye, and dental expenses
- Charitable contributions
- Moving expenses
- Student loan interest
- Tuition and education fees
- Job-related education expenses
- Unreimbursed employment-related expenses
- Child care expenses
- IRA contributions
- Income expenses from rentals or other business
- Casualty or theft losses
Tracking your deductible expenses could mean creating an online (or paper) spreadsheet or something as simple as setting up a few digital folders in your email account where you move electronic statements and bills each month so that you don’t have to go through a year’s worth of expenses come tax season. Pro-tip: Use your smartphone or computer to set a 30-minute calendar appointment with yourself once a month or every three months as a reminder to track your deductions throughout the year.
As you may know, when you take a deduction, it reduces the amount of income you have to be taxed on. So the more you deduct, the less you pay in taxes to the IRS.
Besides general wage statements such as W-2 forms and 1099s, there are a few other items you’ll want to track and save during the year, including interest and dividend income, other income, and a report of your realized gains and losses. (Note: If you didn’t make any sales during the last year, this last report isn’t necessary.)
Make it Automatic
When it comes to filing your taxes, go digital if you haven’t already. It’s the fastest way to receive your refund from the IRS. Before visiting a tax preparer, make sure to have your bank information and ID card available to set up a direct deposit for your refund, or an automatic payment if you owe taxes. The routing information needed for direct deposits can usually be found on a paper check tied to a checking account.
How to Find Tax Help
Coordinated by the IRS, the Volunteer Income Assistance Program, or VITA, provides in-person tax preparation by an IRS-certified volunteer at no charge for those who qualify — typically people who make less than $58,000 a year, those with disabilities, people who speak limited English, or others who need assistance. Check out the options available in your state with the Free Tax Prep Help locator to see if you qualify for the program.
*Please consult your tax advisor/consultant for assistance with your filings.