Tax season is a stressful time. If you're rushed or ill prepared, you might accidentally take a hit where you could have saved some money.
Fortunately, there are key ways to get organized for the tax season to avoid any pitfalls. Whether you plan to do your taxes yourself or are going to hire an agency or CPA to do it for you, follow these steps to make the process easier down the line.
When you file your taxes, one of the very first things you have to fill out besides your name is your social security number. If you don’t know this by heart, keep a copy of your social security card with your tax information. This way when it’s time to start filing, you won’t have to go looking for it.
Deductions are a great way to reduce the amount of money you pay each year in income taxes. For instance, if you are self-employed, you can deduct purchases on business equipment. Other possible deductions for traditionally employed filers include health expenses and any bills you incurred while job-searching.
In addition to saving these receipts, spend some extra time organizing them. At the very least, you should keep each year’s receipts separate. If you want to play it safer, separate the receipts by purpose as well, such as by medical expenses and travel expenses. When you’re ready to do your taxes and claim your deductions, you’ll have everything ready to go.
In the first few months of the year, you’ll start getting any of the forms needed to handle your taxes in the mail. If you are traditionally employed, you’ll receive a W2 from your employer. If you are an independent contractor, you’ll receive 1099s from each of your clients. Other forms you could receive include interest paid on student loans and interest earned on investments.
All of these forms are essential for accurately filling out your annual state and federal income taxes. Keep each form in a safe place as you receive them so you’re ready come tax time. While you may be eager to finish your taxes early, wait until you receive all potential forms in the mail before proceeding.
A lesser known deduction on taxes is from charitable donations. If you ever donate anything, from a monetary donation to a bag of clothing, you can deduct this each year, according to Kay Bell of Bankrate.com. Make sure that you ask for a receipt when you donate items or money. Organizations that accept donations are used to handing out receipts and will have forms ready when you ask.
Keep these receipts for donations in a safe place for when you’re ready to do your taxes. Just remember that donations only count toward this year’s taxes if they were made between January 1 and December 31 of the previous year.
There may be a space in your home that could give you a big break on your taxes. When you work from home, you likely have a home office or room devoted to your business. In this case, the IRS allows claiming a portion of your home. According to Jeanne Sahadi of CNNMoney, this space must be used exclusively for your business, and for nothing else.
If a part of your home qualifies, you can then use a portion of your rent or mortgage payment as a business deduction. If you think this applies to you, measure the space you want to write off as well as the entire square footage of your home. You’ll need to know the percentage used for business when you claim it on your taxes.
Photo courtesy of Lucius Beebe Memorial Library