We're not even through the first month of the new year, but it's already time to starting thinking about your taxes.
April 18 will be here sooner than you realize, and it's in your best interest to start tax preparation before that deadline. Whether you're filing taxes for the first time or you're a seasoned veteran, you'll want to keep some helpful tips in mind.
Start planning now
Let's face it, filing your 2016 tax returns is probably the task furthest from your mind at the moment. But the reality is that spring deadline will be here sooner than you know it. You don't want to put yourself in a position of rushing to file your tax return because you decided to wait until the last minute. Procrastination means you might forget about accounting for an important financial document or missing out on saving money because you didn't claim a particular deduction.
"Now is the time to start thinking about what you'll need to do to file your taxes."
Now is the time to start thinking about what you'll need to do to file your taxes. Here's a checklist everyone will find useful:
Step 1: Gather personal information
The most pertinent information you should start collecting is that of yourself and family. You'll need the birth dates and Social Security information for yourself, your spouse and any dependents.
Step 2: Decide how you'll file your taxes
You can either file your taxes on your own using one of the many software options available, or you can enlist the help of a professional.
According to The Balance, there are three reasons that should influence your decision to seek the help of an accountant .
The first reason is if you've experienced a major life change in 2016. This can include any of the following:
- Birth of a child.
You'll also want to consider seeking the help of an accountant if you purchased a home last year. Once you become a homeowner, your tax burden drastically changes, so you'll need to make sure you have all of your bases covered. Accountants will also help you take advantage of credits and deductions, such as the mortgage tax credit.
Finally, you'll want to work with an accountant if you're self-employed or own your own business. Because tax obligations are different if you own a business, a professional will make sure you don't make any mistakes while also calculating how much you'll likely need to pay in taxes.
Consider these programs
If you're going to be filing taxes on your own, consider using one of the following programs, as recommended by PC Magazine :
- H&R Block.
- Jackson Hewitt.
Another perk of thinking about taxes now is you'll be able to research the above filing options.
Step 3: Gather income documents
You can't file your taxes if you don't have important financial information at your disposal. Over the next few weeks, you should start receiving paperwork from your employer and other financial accounts under your name.
Your W2 is one of the most important pieces of information you'll need. Every employer you worked for in 2016 needs to send you a W2, and you should receive it no later than Jan. 31, according to The Nest .
If you're a freelancer, you'll need to organize your Form 1099 documents, in addition to collecting business expenses that you may be able to deduct.
Other income information you'll want to start collecting may include:
- Investment income.
- Rental property income and expense.
- Social Security benefits.
- Individual Retirement Account distribution.
- Miscellaneous income (jury duty, scholarships, gambling winnings).
Step 4: Gather adjustments to your income documents
No one actually likes paying taxes, which is why you should find as many ways possible to reduce your taxable income. To do this, you'll need to collect income adjustments. These may encompass some of the following, according to TurboTax :
- Student loan interest.
- Moving expenses.
- Medical Savings Accounts contributions.
- Self-employed pension plans.
By collecting the above information, you'll lower your tax burden and may even increase the size of your refund check.
Step 5: Start looking at credits and deductions
The IRS has a number of tax credits and deductions that you can claim. You'll want to start looking these over so you have an idea which ones can help you save money.
For example, if your income is considered low to moderate, you may be able to claim the Earned Income Tax Credit, which reduces the amount of tax you owe .
It's important you look over these credits and deductions because some have specific requirements. You may need to fill out additional forms, such as Form 8829 if you're claiming the Home Office deduction.
Filing taxes requires a lot more work than you may realize. Use these next few weeks when it's still cold outside to start organizing your finances so you can file taxes well before the April deadline. You'll be glad you did.
. Do I Need an Accountant to File My Taxes?
. The Best Tax Preparation Software of 2017
. When Should I Receive My W2 Form?
. Tax Preparation Checklist
. Earned Income Tax Credit (EITC)