Need Tax Relief From Filing Stress? Try These Tricks to Make Next Tax Season a Breeze
Many people wait until March or April to start digging through their tax files--if they even keep a filing system in the first place. If youre suffering from disorganization, make this the year you get on top of your financial files.
For most taxpayers, receiving those W-2s and 1099s at the end of January is a brutal reminder that tax season is looming. And even with that reminder, many people still wait until the filing deadline is a month or less away before digging into their box of receipts from the past year. If youre one of the procrastinators, think of how much less stressful tax season would be if youd been preparing for it, slowly but surely, all year. If that sounds like a lot of work and fuss, dont worry--the biggest key to a painless tax season is staying organized from the get-go. Once you implement a system that works for you, you can decrease the time and money you spend on tax preparation.
Ditch the Shoebox
Perhaps you keep receipts, but simply drop them in a shoebox or other bin to deal with all at once in March. Instead of having a box of random papers to go through when youre preparing your taxes, wouldnt it be nicer to have an organized file? On January 1, buy an accordion file. Label each section with categories that are relevant to your professional and tax life. For instance, you might choose "Business Expenses," "Research," "Travel Expenses," and "Charitable Donations"; a CPA or other expert can offer tax help and advice on what receipts are relevant to save and how you should categorize them. Then, when you have a receipt for a deductible expense, drop it in the appropriate file section. It takes no more time to file the receipt than to drop it into a box, and youll save time when preparing your tax return because you wont have to sift through everything at once.
Keep Track of Income
Whether your paychecks are mailed to you or deposited directly into your bank account, you need to be able to show exactly how much you earned in the past tax year. If youre a full-time employee at one company, this is easy: youll get a W-2 or 1099 (depending on whether your company withholds taxes) from the company itself. But if youre a freelancer or work part-time at multiple jobs, you may be in charge of providing your own tax documents. Employers arent required to issue 1099s to independent contractors to whom they paid less than $600 in the calendar year, but you are still required to declare that income to the IRS. Make a section in your accordion file labeled "Income" and stick in pay stubs, deposit receipts, invoices, and other materials that will help you add up exactly how much you earned from each source of income. Note that interest on bank accounts also counts as income. If you dont declare everything you earned, you might find yourself subject to an IRS audit.
File Quarterlies
If your main source of income doesn't withhold federal or state income tax from your paychecks, you could find yourself owing major taxes in April. But not having an employer withhold taxes doesn't mean you cant pay taxes year-round, like everyone else. Have a tax accountant or other financial professional help you estimate quarterly taxes. This is a lump sum you pay four times a year that is based on your prior years income and is meant to approximate what youll owe in taxes this year if your income stays the same. By writing a check every three months, youll save yourself from the possibility of a crippling tax payment when you file your return.
If you arent good at creating organizational systems or arent sure you have the discipline to stick to your system, hire an accountant or tax specialist to help you. No one wants tax season to be any more frustrating and stressful than it has to be--not you, not your family, and not your paid tax preparer. But with a few easy steps, you can make the whole process significantly less painful.
For most taxpayers, receiving those W-2s and 1099s at the end of January is a brutal reminder that tax season is looming. And even with that reminder, many people still wait until the filing deadline is a month or less away before digging into their box of receipts from the past year. If youre one of the procrastinators, think of how much less stressful tax season would be if youd been preparing for it, slowly but surely, all year. If that sounds like a lot of work and fuss, dont worry--the biggest key to a painless tax season is staying organized from the get-go. Once you implement a system that works for you, you can decrease the time and money you spend on tax preparation.
Ditch the Shoebox
Perhaps you keep receipts, but simply drop them in a shoebox or other bin to deal with all at once in March. Instead of having a box of random papers to go through when youre preparing your taxes, wouldnt it be nicer to have an organized file? On January 1, buy an accordion file. Label each section with categories that are relevant to your professional and tax life. For instance, you might choose "Business Expenses," "Research," "Travel Expenses," and "Charitable Donations"; a CPA or other expert can offer tax help and advice on what receipts are relevant to save and how you should categorize them. Then, when you have a receipt for a deductible expense, drop it in the appropriate file section. It takes no more time to file the receipt than to drop it into a box, and youll save time when preparing your tax return because you wont have to sift through everything at once.
Keep Track of Income
Whether your paychecks are mailed to you or deposited directly into your bank account, you need to be able to show exactly how much you earned in the past tax year. If youre a full-time employee at one company, this is easy: youll get a W-2 or 1099 (depending on whether your company withholds taxes) from the company itself. But if youre a freelancer or work part-time at multiple jobs, you may be in charge of providing your own tax documents. Employers arent required to issue 1099s to independent contractors to whom they paid less than $600 in the calendar year, but you are still required to declare that income to the IRS. Make a section in your accordion file labeled "Income" and stick in pay stubs, deposit receipts, invoices, and other materials that will help you add up exactly how much you earned from each source of income. Note that interest on bank accounts also counts as income. If you dont declare everything you earned, you might find yourself subject to an IRS audit.
File Quarterlies
If your main source of income doesn't withhold federal or state income tax from your paychecks, you could find yourself owing major taxes in April. But not having an employer withhold taxes doesn't mean you cant pay taxes year-round, like everyone else. Have a tax accountant or other financial professional help you estimate quarterly taxes. This is a lump sum you pay four times a year that is based on your prior years income and is meant to approximate what youll owe in taxes this year if your income stays the same. By writing a check every three months, youll save yourself from the possibility of a crippling tax payment when you file your return.
If you arent good at creating organizational systems or arent sure you have the discipline to stick to your system, hire an accountant or tax specialist to help you. No one wants tax season to be any more frustrating and stressful than it has to be--not you, not your family, and not your paid tax preparer. But with a few easy steps, you can make the whole process significantly less painful.
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