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Get Ready for Next Year’s Tax Season

Source: sxc.hu Photo: forwardcom

Source: sxc.hu Photo: forwardcom

Today is April 15th, and if you haven’t filed your tax return, or filed for an extension, today is the day of truth. If you are scrambling to get everything together, take a deep breath, file for an extension (you don’t need a reason, just Form 4868), and make a resolution to do better next year. Filing an extension this year can give an extra six months to get your documents in order, and fill out your tax return in a way that doesn’t rush you into missing credits or deductions you might be entitled to. (Just remember that you still have to pay if you will owe money in taxes, even if you file an extension.) And while you are getting this year’s tax return put together, consider what you can do to avoid this problem going forward.

Tax Season Year Round

One of the most frustrating things about tax time is gathering all of the documentation and getting everything you need to fill out your tax return. one of the best things you can do is to be organized all year. Here are some ideas to help you keep your tax stuff in order all year, so that filling out your tax return is less stressful:

  • Use financial software: There are plenty of personal finance and business finance programs out there. Some programs are even free. Most are affordable. Financial software helps you keep track of tax deductible expenses easily, and can help you track income from various sources. It can also help you keep your investment accounts straight, and keep you updated on any number of financial situations that come up on taxes. At the end of the year, you can easily print out reports that will show you exactly what your situation is, and list your tax deductible expenses.
  • Consider categories: When using financial software, it is possible to use different categories to help you organize information. Think about the expenses that you itemize. You can create a category for charitable donations, and then label your transactions in the financial software. The same is true of business expenses. You can look at Schedule C and get a good idea of the categories available. Then, set up your financial software to coordinate. It’s a matter of looking at breaking things down by category in your end of the year report, and everything will correspond with what’s on your tax forms, so it becomes fairly easy to fill things in.
  • Keep documentation together throughout the year: Create a folder in your filing system for tax documentation. Keep charitable contribution receipts, information from investments you sell, business expense receipts and other documentation in that folder. When you get statements for mortgage interest, W-2 forms, 1099s, and other required information, add it to the file. That way, all of your supporting documentation is together when it’s time to prepare your return (or have someone prepare it for you). Once your tax return is prepared, get a large manila envelope and write the tax year on the outside. Then, put your supporting documents inside, along with your copy of the tax return.
  • Plan ahead: A good way to plan ahead for the tax year is to consider what is available. Look for credits and deductions (or ask a tax professional) that will be coming up in the year. If they make sense in your situation, plan out how you can take advantage of them in the normal course of your business or your personal finances. For instance, if you have been meaning to make energy upgrades to your home, this is a good year to do it, since it is the last year for generous green home improvement credits.

If you take an hour or two now to set up a system that can help you stay organized throughout the year, you will find that preparing your tax return next year is a lot less stressful.

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