With the holiday season right upon us we not only get to enjoy fun filled family time and celebrations, but we also get to enjoy the preparation for tax season. For a business owner, tax season is probably my least favorite time of year. There is just so much that goes along with filing your taxes when you have your own business. It can be a whirlwind of confusion and if you do not have an accountant to help you, I can only imagine the amount of stress that tax season can bring.
I have learned that preparing a little bit at a time before tax season can cut down on your stress levels more than you think and it can keep you from having to file an extension. Here are a few simple things that I have found very useful for preparing for taxes:
Verify your personal information.
The first and easiest step is to gather all your personal information. You’ll need this to accurately identify yourself on your tax return. This is especially important if you’ve had a recent name change, or new addition to the family.
It is also very important to notify your employer if your address has changed from the previous year so you know that your tax form will be mailed to the correct place. Make a file with all of your personal information in it to give to your tax preparer as this will cut down on time and hassle.
Gather your income documents.
Now it’s time to gather all of your income data. Employers are required to send out the necessary forms to their employees by January 31st. To be prepared for when they come in the mail, it is always good to have your expected forms written down so you can check them off the list as they come in. Do the same for your spouse as well.
Taking these measures will allow you to stay ahead and get your taxes finished earlier. Another plus to writing down what forms you are expecting, is being aware when one doesn’t come in the mail on time. Employers get behind just like we do so if you notice that the January 31st deadline for receiving your form is coming up you can contact your employer and see what is causing the hold up.
Create an itemized list of deductions & credits.
Most of us don’t understand, or simply don’t know all of the deductions and credits we qualify for, and therefore end up paying for more taxes than we actually need to.
Don’t give more of your hard-earned money over to the IRS than you have to. Talk to a tax professional or CPA to create your custom list of all the deductions and credits you can claim on your taxes.
Consider your income adjustments.
Income adjustments can help you reduce the amount of taxable income, which can help lower the amount of taxes you owe overall.
These are above-the-line adjustments, not credits or deductions, and include things like; retirement fund contributions, student loan interest, energy credits, and health insurance costs if you’re self-employed.
Know what taxes you’ve already paid.
If you’ve already paid taxes during the year, record exactly what you’ve paid and make sure you have it easily accessible.
Put copies of your cleared checks, or bank statements, verifying the amount of money you’ve already paid in taxes throughout the year, into your tax file. You’ll want this handy when filing your taxes because this will help prevent you from overpaying or essentially double-paying.
Always keep more documentation that you deem necessary when it comes to your taxes. The more proof you have of expenses or taxes, the better. I try to keep documentation of everything that I spend just in case I can deduct it from my taxes. You would be surprised what you can claim so doing your necessary preparations is a MUST!!