Are you ready for Tax Season? Here are some things to think about before filing your taxes and how you can be prepared!
Get Your Tax Records and Documents Together
Have you received your W-2 or other documents?
You won’t start getting tax information like a W-2 wage statement or 1099s from investment accounts for the 2019 tax year until well after 2020 begins. But you can get ready for that onslaught of tax information by making sure that your address is correct with your employer and investment providers. That’ll ensure forms come on time, letting you prepare your return more quickly.
Looking over your old tax records to see who’s sent you materials in the past can give you a checklist you can use throughout tax season to make sure you’ve gotten everything you expect before you file.
Adjust your withholding
Many taxpayers who filed their returns in late January and February this year expected a refund. But they discovered they actually owed money to the IRS. (Learn why.)
Fixing the surprise tax bill problem is simple. You may have missed it, but the IRS made updates to the withholding tables immediately following the tax law changes. These tables determine how much you set aside for taxes from each paycheck. Many taxpayers failed to update their W-4 forms, which tell employers how much to withhold for taxes, in 2018. In fact, only one in five did so, according to a 2018 H&R Block survey.
Not sure how much to withhold? Check out the handy withholding calculator on the IRS website and read our guide to using it.
Carefully track your possible deductions
Just as in every previous year, keep track of your receipts, invoices and bills in a centralized location. For individuals, this could be medical bills, donations, local taxes and more. For small business owners, this could be travel expenses, mileage driven, retirement contributions or other deductible business expenses.
It’s always better to have more documentation than less. Pulling together your paperwork early and in one central location will make your life easier come next tax season.
Read up on the new tax laws
If you find yourself with spare time, read up on the updated tax law. Here is a general guide that also goes into specifics, from tax deductions that are going away to how the new tax law affects life insurance.
Fund your retirement
Whether you have a 401(k) through your employer or an equivalent retirement plan, it’s a good idea to look at your retirement account contributions at the same time you review your W-4.
Funding your retirement account comes with tax benefits. You can contribute to traditional retirement accounts tax-free, while you can withdraw from Roth accounts tax-free in retirement. Aside from the tax benefits, you’re also making it easier to reach your retirement goals.