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Your Guide to Stress-Free Tax Preparation
I have to admit, I am one of those weirdos who doesn’t dread tax season. It doesn’t stress me out, I don’t feel any urge to procrastinate, and believe it or not, I actually enjoy filing my taxes.
There is just something encouraging—and (dare I say it?) fun—about watching the amount of my tax return go up with every new section of TurboTax I fill out.
It is like watching a horse race when you have a bet on your favorite jokey. You have a stake in the game, and every cent you are able to claim as a deductible makes an impact on how much you take home at the end of the day.
I realize that my attitude about tax season is not something everyone shares. But everyone could have an easy time filing taxes like I do if you prepare ahead for the inevitable. Didn’t Benjamin Franklin say that the only certain things in life are death and taxes? You know it’s coming—so this year, tackle it prepared.
Being prepared to file your taxes doesn’t mean you hunt down all the info you need as you are filling out your forms (talk about stress), it doesn’t mean waiting until April to get started (panic!), and it doesn’t even mean waiting until your W-2s show up in your mailbox before you consider a filing strategy.
Start early—as early as January—collecting your stuff, getting organized, and making a concrete plan to tackle taxes with ease. Hint: You don’t need your W-2 for any of these steps! Start now!
*I am not a tax expert by any stretch of the imagination. I just want to share with you the way I prepare my way to stress-free tax filling, which can be applied to most families. If your taxes are complicated, or you have any questions, contact an actual tax expert.
Collect your tax stuff.
You need so much information to file for taxes. It is A LOT—and if you wait until you are filling out your forms, not only will it take hours to prepare, but you will be running around like a mad person, scrambling to find things.
It doesn’t have to be this way. Collect all your stuff early, and often.
You will need all your basic information, so let’s start there. Make sure you have the social security numbers of everyone in your family and any other dependents, a copy of last year’s tax return, and your bank account number and routing numbers so that you can see that big fat return in your checking account even sooner.
Any time you purchase something for your business or anything else tax deductible, keep the receipt! You won’t be able to find it if you aren’t thinking ahead to taxes for the whole calendar year. Collect it all!
When something tax related comes in the mail, you have to hold onto that, too. A lot of important stuff is sent to you at the beginning of the new year, but there are some oddball things that are sent at different times of year according to your state.
Not sure what to watch out for, and what is worth holding onto? Look for:
- charity receipts
- real estate taxes
- medical bills (I forgot about this one last year, and I was scrambling. Live and learn.)
- property taxes
- mortgage interest information (1098)
- vehicle licensing fees
- property taxes (these come in October and April where I live…watch out for them year round if you aren’t sure what kind of payment cycle you are on.)
*There are lots of other forms and documents that might pertain to your situation that I have not listed. Look at your taxes from last year to give yourself a jumping off point for what to look for this year.
The next step after you have collected everything is to get organized. You can make this step as complicated or simple as you want. It is up to you. The one thing you absolutely need to do is to put everything you collected in one place.
I have a very ugly accordion file folder that I bought on clearance at Target (it is leopard print—ew), and I have a folder in it for each tax year. Whenever I get a new receipt or a relevant document in the mail, I immediately throw it into the correct folder. This way, I know where everything is!
Not only will it be ready to go as soon as you are ready, but if you have kept up with this simple system, you can quickly find a copy of last year’s taxes, and the year before, and the year before…
If you are an organization nut, and want to go above and beyond, take out your previous year’s paperwork and arrange this year’s documents in the order that you will need to enter them in your tax filing program or forms. Then pat yourself on the back, you overachiever!
Getting organized is not only about needing to know where everything is…but knowing what you will need.
Of course you will need all the same stuff you needed last year (again, check last year’s return paperwork to find out what that was), but you also need to assess if there is anything new that you need to include this year.
Did you get married? Have a child? Have any major or minor medical incidents in your family, did you buy a new house, sell a house, rent out your house? How about a new car, new job, starting a business, or moving?
If anything about your situation changed, you need to find if there are any forms or documents that need to be printed or requested so that you can file your taxes.
Know what you need so that you can be as organized as possible before you file.
Make a plan.
Decide how you will prepare your taxes.
I really like to prepare my family’s taxes with TurboTax. They are inexpensive, and just take a small amount from your return. That is really convenient for me. TurboTax is also really easy to use, has excellent customer service, and you can even ask tax experts questions in real time. They helped me so much last year when I had to figure out my forms after a big move.
You could also go to a tax filing company like H+R Block to file, if you prefer to work with someone face to face. They help you fill out your return, but they aren’t really tax experts. For most people, filing yourself is easier. However, sometimes they have deals that make filing with them cheaper than with TurboTax. You will just have to compare and decide if that is more important than convenience.
Another option is to hire an accountant. This is a great option if you want a tax expert working for you to get you the biggest return possible. If you have your own business, have lots of complicated investments, or just have any situation that isn’t the norm, consider hiring a CPA to help you not only file, but plan for, taxes.
Make a plan for how to pay up (or spend the return).
If you are exempt from tax withholding, or have a lot of allowances so that you don’t withhold a large amount, you probably OWE taxes at the end of the year. That isn’t necessarily a bad thing—I know a lot of people who swear they end up paying less in taxes this way.
*BTW, tax withholding is when your employer keeps a chunk of your paycheck to pay your taxes for you. If you are exempt from withholding, your paycheck will be bigger, but you will owe money to the IRS once a year.
If you are one of these folks, make sure you are setting aside money for taxes out of every paycheck. Be sure to keep up with it, or you will be in trouble. For a great workable plan, determine how much you usually owe, add in some wiggle room, and divide by the number of pay periods per year. Set at least that amount aside from every paycheck and you should be good.
If you withhold the maximum amount (like I do), look forward to a return! But be careful—that does not mean depend on a tax return! You never know what can happen, and you may end up not getting as much back as you expected. This is why you need a good plan for how you will spend your tax return.
In my opinion, your tax return should not be spent on rent, your mortgage, bills or groceries. This could lead you to being dependent on the return. Instead, make a plan to put the money in your emergency fund, pay off a chunk of debt, add it to your child’s college savings, or give your IRA a little boost every year.
These things will pay off big in the long run, but it won’t be the end of the world if your return is smaller than expected. Our return usually goes to the Dave Ramsey Baby Step we happen to be working on at the time.
So…do you feel ready for tax season? This year, it will be awesome because you know how to prepare to make it as easy as possible! I have already collected all my tax stuff, gotten organized, and made a plan—I am just waiting on my W-2, and I will be ready to go! I plan to spend tax day taking advantage of all the deals and freebies, with extra cash in my account and not a worry in sight. It is a good feeling.