Benjamin Franklin famously said that “in this world nothing can be said to be certain, except death and taxes.” For some people every April, the two can seem almost inseparable.
Part of the problem for many people is a lack of preparation and planning throughout the year. That leaves them scrambling at the last minute to find records and receipts to squeeze the most out of their returns.
Thinking ahead and creating new habits can take much of the frenzy, and even a bit of the pain, out of the annual tax chore. Here are six tips to start now to be ready for next April.
Set up a system. Managing your paperwork requires a system. There are many apps and online programs that can help you create a system that works for you. Or, if you’re old school, a file cabinet or an accordion folder works well, too.
Follow the system. This is the much harder part. Be diligent about weekly, or at least monthly, filing of paperwork. The more often you do so, the easier it is to keep up.
Set up recurring donations. If you’re committed to giving to a church or a charity, having a regular payment schedule can help with record keeping. While any tax deductible entity will send you a final tabulation of your donations, a system can help you see where you are throughout the year, and whether you want to make a larger one-time contribution late in the year to maximize your deductions.
Pick some brains. Ask your tax preparer or colleagues for some tips on what you should be aware of throughout the year that will help you maximize deductions. The internet is also loaded with tax tips. This can also help you stay aware of changes in tax laws.
Review your withholdings. Are you having enough taken out of your paycheck to cover the final taxes? Are you having too much taken out? While getting a big refund may seem like a boon, it actually means you allowed the government to have your money interest free. It’s better to get as close to zero owed or refunded as possible, and invest that money yourself.
Evaluate your retirement plan. Plans like IRAs have various limits for how much can be contributed tax-free. Before deciding to increase the amount, make sure it won’t exceed those limits, or be prepared to pay taxes on the excess contributions.