If you’re a procrastinator, avoid the usual last-minute panic by crossing these things off your list.
If you’re one of those people who every April curses themselves and says, “Next year, I’m going to start doing my taxes early,” well, guess what? It’s next year – and it’s early. So if you want this to be the year you don’t file at the last minute in a sweaty panic, here’s what you should be doing now.
Gather that paperwork. Let’s assume you’ve been to the ball before, and you know the dance moves here. We won’t spend much time on this. Just know that you should gather paperwork related to anything you’d want to show the IRS to substantiate any deductions you’re taking. That paperwork includes:
Anything the IRS sends you. Also be sure to put everything in a designated folder, says Thomas Walsh, an Atlanta-based certified financial planner with the Palisades Hudson Financial Group.
“In January, you will begin to receive important tax documents online or in the mail, such as Form W-2 reporting employment income or Form 1099 reporting taxable investment account activity,” he says.
Receipts. These would be for things like charitable or medical deductions, as well as any paperwork related to any mileage you deduct.
Hopefully, you’re keeping a mileage log, says Garrett Gregory, a former IRS attorney who runs Gregory Law Group, a Dallas-based firm that specializes in taxes, with his wife, Deborah.
“However, the IRS can challenge a mileage log. So in addition to the log, we need something that substantiates the total miles driven for the year,” Gregory says. “An easy way to do this is show an oil change receipt from the beginning of the year and one from the end of the year. This will show that the total number of miles claimed on the mileage log is reasonable.”
Estimated tax payments. If you’re self-employed, make sure you have copies of the estimated tax payments throughout the year and hand that to your accountant, says Chris Smith, a certified public accountant and owner of CB Smith & Associates Inc., in Cumming, Georgia.
Or, if you’re doing your taxes yourself, gather them – you’ll still need them, unless you have an amazing memory.
“A lot of people are confused on when the payment was made versus for what tax year the payment was for,” Smith says. “For example, an April payment could be for the current year’s estimated taxes or a prior year tax payment made with the filing of an extension. Individuals need to distinguish that.”
And you may want to talk to your boss about your taxes. “Check with your employer now to see if you can be reimbursed for any work-related expenses you’ve incurred over the past year,” says Mike Campbell, a San Francisco-based tax partner at BDO USA, a business services practice headquartered in Chicago.
Campbell also suggests that while you’re immersed in paperwork, you put anything aside you can, or write anything down or save receipts that might help you organize your taxes for next year.
“Postponing the gathering of data later in 2016 often can lead to missed deductions just due to the passage of time. Get a head start while it’s still fresh,” Campbell says.
Look for ways to reduce your tax bill. Think of the usual suspects, like retirement funds and your kids’ college education.
For instance, Deb Repya, vice president of advanced markets for Allianz Life, says, “People often overlook the ability to make contributions to a Roth IRA.”
She adds that “this is a great strategy because qualified distributions from a Roth upon retirement are income-tax-free, even growth within the account. Even better, these contributions can be made up to the April tax filing deadline and still apply to your 2015 tax return, though [they are] not tax deductible.”
Or, again, maybe you can reduce your tax bill by doing something you want to do anyway: Put money into your child’s college education.
“Depending on the state you reside, you may be able reduce your state tax bill for 2015 by making a contribution to a section 529 college savings plan,” Walsh says.
Make an appointment now to do your taxes soon. Make the appointment with yourself if you aren’t hiring a tax preparer. Circle a date on the calendar in February or early March and stick to it. But if you get a lot of tax-related paperwork in the mail, like 1099s, be careful that you don’t file too early. Even though 1099s should be in your mailbox by early February, sometimes there are stragglers. You don’t want to file and then have a rogue 1099 show up in your mailbox. But you certainly want to pick a date with plenty of weeks to go before mid-April.
Why? So many reasons. If you owe money, you’ll have more time to budget for whatever you have to send in, and if you’re due a refund, you’ll get it sooner. If something goes wrong in the tax planning, and you realize you’re in over your head and need professional help, or you didn’t collect all of your paperwork, you’ll presumably have time to address it without having to ask for an extension. And the more time you have, the more time you have to spend working on your taxes. While that may be a pain, it will likely save you money in the long run.
For instance, Deborah Gregory says that if you’re self-employed, you might want to “set up an employee pension plan and shelter the lesser of 25 percent of income, or $53,000 for 2015. This has to be set up before the filing deadline of April 18, 2016, so it’s important to get your taxes done early to determine if this strategy makes sense.”
Of course, if you’re a true procrastinator, you didn’t pick up on most of that. You simply read that last sentence as, “You have until April 18, three extra days past the usual April 15, to file your taxes.”
Culled from: US News.com
Written By: Geoff Williams is a regular contributor to U.S. News. He is also the author of several books, including “Washed Away,” about the great flood of 1913, “C.C. Pyle’s Amazing Foot Race,” about the infamous Bunion Derby of 1928 and “Living Well with Bad Credit.” You can follow him on Twitter @geoffw.