With the holidays on the horizon, we’ve got plenty on our minds. From buying Christmas gifts to searching for the perfect New Year’s Eve outfit, handling work deadlines before heading out on break to dealing with crowded airports and holiday travel, our list of to-dos at this time of year seems to be endless. However, there’s one more thing you should add to your list—tax preparation. Taxes might not be at the top of your priority list, but the start of tax season is looming—January is less than two months away. Instead of scrambling after the holidays to get your finances in order, take the time to begin preparing your financial documents and make it through this upcoming holiday and tax season unscathed.
Getting Organized
We can’t overstate the importance of getting organized. Gather any and all important financial documents. Whether you’re employed by a company or own your own business, it’s important to keep abreast on all of the financial aspects of your employment to understand just how much you’ll owe or receive come tax season. Use an app like Mint to help manage your money and budget year round—it will help immensely when it comes to filing.
Organization decreases the chance of filing incorrectly, which is easy to do, even for the most simple of filing processes. That’s why many hire the help of tax professionals—the consequences for an incorrect tax filing can be devastating. What kind of consequences? First come the warnings, like an IRS Notice of Deficiency, which lets you know your tax filing differed from what your employer reported. If that notice is ignored, the government can pursue tax liens and levies, in which your personal assets are seized. Scary, but avoidable if you do your homework and keep your tax papers and financial necessities all in one place.
Contribute to Your Retirement Accounts
Want to reduce your tax bill even further in the upcoming year? Use these last couple of months of 2016 to make some contributions to your retirement accounts. Whether that be a 401(k) or IRA, contributing money means receiving a dollar for dollar reduction in your income when it comes to filing your taxes. There are limitations on the contributions you can make to these accounts, but putting as much as you can is advisable, for both your immediate and long distance financial future. If you don’t yet have a retirement account, consider opening a Roth IRA. While 401(k)s and traditional IRAs are not taxed while you’re saving, they are taxed when finally withdrawn. In contrast, a Roth IRA allows you to contribute after-tax dollars, and the eventual withdrawals from these accounts are generally tax-free.
Consider Holiday Donations
Tis the season to give and receive. Not only do charitable donations improve the world around you and provide that fuzzy warm feeling of knowing you’re helping your fellow man—they also help you out immensely when it comes to tax season. Contributing funds to a charity or donating used and new goods to a charitable organization can qualify you for valuable tax deductions. Pick a charitable organization close to your heart from CharityNavigator.org and make the difference in your community and your tax return (hint: be sure the charity in question is approved by the IRS for deductions).
Reconsider Your Withholdings
If your employer withholds your taxes from your paycheck, it’s a good idea to check in and make sure the correct amount is being withheld. If you experienced any sort of major life event this year, including marriage, divorce, having a child, or losing a significant chunk in your deductions or income, there’s a good chance your taxes were affected. Revising your withholding can help you ensure there’s not too much or too little being taken from your paycheck.
Getting a jump on the upcoming year’s tax processes can result in a better return or a lesser tax bill. Use these tips to your advantage as we finish up this year and you’ll be sitting pretty come tax season.
