Preparing for tax season can often feel more like a sprint than a marathon. You receive your W-2 forms in late January, and then you find yourself digging through a box of receipts, trying to make sense of your tax return during a stressful weekend. Overall, it feels like an overwhelming and nerve-wracking task that you dread every year.
But what if filing your taxes didn’t have to be so stressful?
The key to a smoother tax season is preparing early—starting now. If you want a more relaxed tax season, here’s how to get ready.
Make a list of the information you’ll need
One of the most frustrating moments in tax preparation is realizing you’re missing a crucial piece of information after gathering everything else. It’s even worse if you’re unsure where to find it.
Take a moment to review the specific information you need to file now, so you have ample time to collect everything before Tax Day. You will specifically require:
- A copy of last year’s tax return
- The Social Security or Tax ID number of every household member
- The income records of each household member
- Receipts for your deductible expenses
- Records of any taxes paid throughout the year
Compiling your list and checking off items as you gather them will ensure you’re fully prepared when it’s time to file. (See also: The 7 Most Common Tax Questions for Beginners, Answered)
Organize your receipts
Keeping track of tax-related receipts throughout the year can be challenging. Many people tend to throw all their receipts for work-related expenses, charitable donations, mortgage payments, medical expenses, and interest statements into one folder or box for “later.”
Now is the perfect time to pull out your receipts and organize them by category. Having them neatly sorted will make it easier to handle any new ones that come in as the year wraps up, and will help you build the habit of organizing as you go.
Gather your pay stubs
While most filers will receive either a W-2 or 1099 form from their employer(s), it’s wise to gather your pay stubs before year-end to estimate your income. This can help you spot potential mistakes on your W-2 or 1099 forms right away. It’s far better to catch an error early than to request a corrected form close to the IRS deadline.
Additionally, reviewing your pay stubs allows you to monitor your federal and state tax withholding throughout the year, along with any pre-tax contributions made to your 401(k) or IRA.
Review your W-4
Examining your pay stubs now also offers a chance to review your W-4 with your employer.
The W-4 form determines the amount of tax withheld from each paycheck. If you anticipate receiving a large refund this year, you might adjust your withholding allowances now to increase the amount of your take-home pay in 2020. Conversely, if you’re worried about owing money due to insufficient withholding, this is a good time to adjust your W-4 to prevent the same issue next year. (See also: Are You Withholding the Right Amount of Taxes from Your Paycheck?)
Contribute more to your retirement fund
If you have access to a tax-deferred retirement account, like a 401(k) or an IRA, now is the perfect time to check how much you’ve set aside this year and try to increase that amount.
As of 2019, individuals under 50 can save up to $19,000 in a 401(k) and up to $6,000 in an IRA. Every dollar you contribute to these accounts decreases your taxable income.
Now is a fantastic time to maximize your 2019 contributions. You have until the end of the calendar year for 401(k)s, but you can continue contributing to your 2019 IRA until April 15, 2020.
Getting in the habit of increasing your contributions now can help you reach the maximum limit in 2020, which will rise to $19,500 for 401(k)s, while the IRA maximum remains at $6,000. (See also: 8 Tax Return Mistakes Even Smart People Make)
Plan ahead for your refund
If you expect to receive a refund this year, start thinking about how to best utilize that money now. Many view a tax refund as “free money,” even though it’s just a reimbursement of your own earnings. This mindset can lead to splurging on non-essential purchases, like vacations or new gadgets.
While enjoying your tax refund is perfectly fine, evaluating your budget and financial situation now can help determine if it’s wiser to spend it or pay down debt instead. Maybe there’s a major goal you’re saving for, like a down payment on a house, that would greatly benefit from that extra cash.
Considering the best use for your tax refund before you receive it can increase the likelihood of making wise financial choices once the money is in your hands. Once you have it, the temptation to spend it frivolously can be high.
Make your tax season less stressful
Taking a proactive approach to your filing tasks will not only simplify tax season but also help you prepare for your finances in the year ahead. Start 2020 on solid financial ground by preparing for tax season early.
