Despite the IRS’s recent announcement that they won’t begin processing returns until February 12th, tax season is upon us. I can’t speak for you, but it’s definitely not my favorite time of the year. Gathering receipts and records, searching for last year’s return, waiting for tax documents to arrive, locating your IRS pin number, deciding how you will file, and getting everything completed by the deadline. These are just some of the unavoidable hoops we have to jump through when it comes to filing taxes.
Believe it or not tax season doesn’t have to be stressful. There are a few things you can do to help yourself get through it comfortably. Below are five tips to help make your tax season go as smoothly as possible.
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Create a plan.
Filing taxes can be quite stressful when you fail to plan it out. For example, you get started on your return then realize you’re missing some information and have to put your filing on hold until you have everything you need. You might complete the entire tax return only to realize that you don’t have your previous year’s AGI or your IRS PIN number. Now you can’t e-file your return, you will have to find the information or mail the return. These kinds of hiccups can be avoided with just a little planning.
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Write up a list of information you will need in order to complete your tax return. Set aside a day just for digging up or requesting all of the records you will need, including a copy of last year’s return and your IRS PIN number if applicable. Business owners, if you have been making estimated tax payments throughout the year, be sure to look up the total tax you’ve paid so that you can reflect that amount on your return. The IRS does not keep track of this information for you.
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Decide how you are going to file. Are you a do it yourselfer? If so, which software will you use? What features does the software offer? How much will it cost? Also be aware that the IRS offers a free filing option for anyone making with adjusted gross income (AGI) of $72,000 or less.
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Are you planning to pay a professional to file for you? If so, do the leg work and get referrals from people you know who file a tax return that’s similar to yours. Reach out to any referrals you get and ask whatever questions you might have for them.
2. Know what to expect.
To ensure you don’t get hit with any surprises, it’s a good idea to estimate the amount of your refund or the amount of tax you owe before you actually file. You could even use a free software to create the return without filing it at that point. This information lets you know what to expect, gives you time to plan, and it could also affect when you decide to file.
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What are you planning to do with your refund? Rather than splurging on random things or enjoying the moment just because you have extra money. Think about what you should do with the money before you even file. Evaluate your financial needs. Is there debt you need to pay off? Are there home or vehicle repairs that need to get done? Do you need to build your emergency reserves? Evaluating your options ahead of time helps to ensure that you put your money toward its highest and best use.
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Do you expect to owe? If you anticipate owing taxes, identify how you are going to pay the liability. Do you already have the money set aside? Are you going to enter into a payment plan with the IRS? Owing the IRS is no fun, especially when it’s unexpected. Knowing whether or not you will owe before you file allows you to figure out how you’re going to cover the liability.
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When are you planning to file? If you anticipate a refund, you probably want to file early to get your refund into your account. If you owe on the other hand, taxes are due at the time you file. It might make sense to wait until later in the tax season but prior to the deadline. This will give you time to come up with the money if you don’t already have it.
3. Don’t procrastinate.
One of the worse things you can do is wait until the last minute to file your taxes. It’s harder to get professional help at this point because demand is usually high. If you’re filing your own taxes and missing information that’s not readily available that can pose a problem as well. Waiting until the last minute only increases the possibility of your return being filed late which means paying unnecessary penalties and interest.
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Gather all the necessary records as soon as possible.
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File your return as soon as you have all the information you need. Unless you are strategically delaying the filing
4. Don’t forget your $300 charitable deduction.
The 2017 tax law increased the Standard Deduction significantly. For 2021, the Standard Deduction is $12,550 filing single or $25,100 filing jointly. These amounts have made itemizing less relevant because most families do not have itemized expenses exceeding the Standard Deduction. Charitable donations are an itemized expense. However, the 2020 Cares Act included a provision that allow you to take a charitable deduction up to $300 for 2020, even if you take the Standard Deduction.
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Be sure to take advantage of the $300 deduction if it applies to you.
5. Make sure your direct deposit info is up to date.
Getting your money into your hands as quickly as possible is a sentiment most everyone agrees on. If you include the wrong direct deposit information with your return, there will be delays in getting your money.
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Before you submit your return, double check your banking information to ensure that your cash lands in the right place.
Be ready for tax season this year and spare yourself the unnecessary headaches.