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Every year, millions of American taxpayers go through the painful process of filing their taxes. Tax day is not a day that most look forward to. The complexity of the tax code along with the prospect of having to write a check to the government is enough to give anyone heartburn.
However, you can employ some strategies to help keep your stress levels down throughout tax season. The good news is that filing your tax return is only a once-a-year event. Try these tips to make your tax season smoother, easier, and less stressful.
1. Don't wait until the last minute to start your tax return
There's nothing more stressful than having a deadline looming over your head. In addition, if you want to use a tax professional, he or she may not have the time necessary to get your tax return done if you wait until the last minute. Tax professionals take on many clients in order to make their business worthwhile, and they only have a short window in which to get the majority of the work done. Don't expect to walk in at the last minute and get your taxes done right away.
Important tax forms from your employer, banks, and investment houses will begin to arrive at the end of January. Get yourself ready to file by pulling together the other documentation you'll need, such as mortgage and tax statements, receipts, and other deduction backup paperwork. That way, once you have everything, you can get started.
2. Hire a tax professional
Many Americans take on doing their taxes on their own each year, but find it nearly impossible to understand and apply the tax codes. If this describes you, consider hiring a tax professional. It would be better to make that decision before tax season is upon you, as tax professionals can give you great advice throughout the year to help you save money on your taxes. If you wait until tax season, you may find that they don't have the time to take you on as a new client. Besides, once January comes, it's too late to employ tax strategies for the prior year.
In addition, when you hire a tax professional, you get the benefit of someone who's aware of and on top of all the tax code changes each year. Not only does this protect you from making important omissions or mistakes on your tax return, it also allows you to take advantage of any new tax breaks that may work in your favor. Hiring a tax professional can give you the peace of mind you need to get through tax season without stress.
3. Stay on top of tax code changes and potential advantages
Every tax year, there are new changes to the tax code that'll affect your tax situation. Often, these can mean big tax savings for you if you're aware of them. As an example, Congress can and has enacted certain energy-related incentives. If you comply with new energy standards, you could reap the benefits of tax deductions, credits, and refunds.
You can research these changes to the tax code by accessing this section of the tax code on the IRS website. By staying aware of these tax codes, you could implement steps to take advantage of them during the tax year.
Other areas of the tax law you should be paying attention to include ways to shelter your income from federal tax.
Health Savings Accounts (HSAs)
You can contribute to a Health Savings Account with pre-tax dollars, meaning a portion of your income that you choose to contribute wouldn't be subject to taxation. This can be beneficial in a couple of ways. First, you'll be able to reduce your taxable income. Secondly, you'll be able to pay for out-of-pocket medical expenses with tax-free dollars.
You can save significant tax dollars by contributing to your 401(k) retirement savings account. Dollars contributed are pre-tax, which will allow you to save more rapidly for retirement. Be sure to max out your benefit by matching your employer's contribution. By contributing as much as you can into your 401(k) plan, you can reduce the amount of income you face taxes on each year.
Contribute to an IRA
You have several options when it comes to contributing to an IRA to save tax dollars. You can contribute to a traditional IRA and take a tax deduction for those contributions, provided your income doesn't exceed a certain threshold. You can also contribute to a Roth IRA, which will allow you to earn income inside the IRA, tax-free. However, you won't receive a tax deduction for your contributions.
Tax-free municipal bonds
When you put your money into municipal bonds, you're, in essence, loaning money to a state or local government to fund a project such as a road, school, or hospital. Instead of borrowing money from a bank, governments will ask their communities to fund the project. In return, participants will receive tax-free interest on the money they've loaned to the project.
These methods and accounts can help you save tax dollars and earn significant deductions on your year-end tax return. In addition, they'll help you save tax dollars and build for your retirement.
4. Get and stay organized
Being organized is at least half the battle to getting through the tax season with as little stress as possible. Keeping track of all your receipts and documents is a very important part of getting your taxes done accurately and timely. There are a few ways to approach organization throughout the year.
If you aren't a person who's typically very organized, designate one place to save anything you might need for tax season. This can be a box or a basket; just make sure it's easily accessible. Throw anything you think you might need for tax time into the pile. While this may seem like an unorganized method, that's not necessarily the case. With one central place to gather documents, you can be sure you don't discard anything you might need. At the end of the year, this method forces you to go through each piece of paper to make sure you never miss a deduction.
If you're a person who likes to file on the fly, create a folder for each category and stay on top of putting documents in the proper file. This is sure to save you some time at the end of the year. Just make sure that you don't get lazy and forget to file important paperwork, as this could cost you money-saving deductions.
If you're really organized, you can keep a spreadsheet of all your expenses, deductions, and other pertinent financial information. If you can keep up with it, and keep the backup documents organized, this can save you valuable time at the end of the year.
5. Don't go it alone
Organizing yourself for tax season doesn't have to be a solitary event. Call on your spouse, family, or even a friend to help you get prepared. Going through receipts and putting them into categories is a simple task that almost anyone can do.
The important thing is to ask for help if you feel overwhelmed. If you need professional help in the way of a financial advisor or tax specialist, don't wait. As mentioned, tax professionals will be, most likely, too busy to help you if you wait too long to reach out.
6. Understand how life events change your tax picture
Certain life events can significantly alter your tax situation. Events such as a marriage, the birth of a baby, a move, buying or selling a home, or someone going to college are some of the things you should be aware of.
The IRS offers some guidance on how life events can affect your tax picture. You can access this guidance by going to the life changes section of its website.
7. Separate your taxes from your everyday life
Don't do your taxes on the dining room table or on the coffee table in the living room. It'll help your state of mind to find a quiet place that can accommodate all the paperwork you need to work on your tax return. Also, try to do your work when the house is quiet and free from any distractions. If you have a separate office, this could prove to be an ideal place in which to get your taxes done.
In addition, it's important for your mental well-being not to obsess too much over the numbers on your tax return; they are what they are. Be thankful for the money you earn and make the best of your year-end finances.
8. Check out the latest tax software
There are several choices available to you if you want to utilize a tax software program. Of course, you can always do your taxes the traditional way with a pencil and your paper tax forms, but tax software is a breeze to use.
Turbo Tax has been the standard for tax preparation for quite some time. It's easily accessible and very easy to use. In addition, it provides updates on tax code changes in real time and has many support functions to aid taxpayers in getting their taxes filed correctly. Audit support, if needed, is available as well as an add-on feature.
If you're not sure which tax preparation software is right for you, you can research your options through this link.
9. Utilize the IRS website and toll-free number to get answers
You can access the IRS website to gain access to tax forms, get answers to tax topics, and read recent publications. Just be sure you're viewing the latest version of tax publications, as they do change regularly. You can find what you need by searching this section of the IRS website.
You can also call the IRS through its toll-free number at 1-800-829-1040 between the hours of 7am and 7pm. Make sure that you call early during the tax season, as the closer you get to April 15, the longer you'll have to wait to talk to someone.
You can also visit a local IRS office and get the help you need face to face. Just utilize this link to locate your local office and make an appointment.
10. File electronically
Filing electronically makes the process more efficient. You'll receive a confirmation that the IRS has received your tax return, and you'll receive your refund, if applicable, much quicker.
In addition, if there's an issue with your return, the IRS will be able to notify you quickly. Filing your return electronically definitely provides you with an advantage. If you want to learn more about electronic filing, visit here.
Filing your taxes doesn't have to be a stressful event. By following even just a few of these strategies, you can keep your stress levels under control. Breeze through tax season this year; it's easier than you think!