How to Make Next Year’s Tax Season Less Stressful
If you filed your tax returns before April 18, 2023, it may feel great to place another tax season in the rearview mirror. But millions of Americans are still in the throes of completing their tax returns, with more than 19 million taxpayers submitting valid extensions this year. For them, October 16 looms as their new tax deadline.
People file extensions for all kinds of reasons, including some they can’t control, such as receiving needed tax documents late, or living outside the U.S. But others just need more time to get themselves organized. Tax season – however long it lasts – can be stressful, especially if you’re scrambling to gather all of your necessary documents and facing the possibility of owing money to the government. With proper planning, however, you may be able to reduce your stress level and find ways to lower your tax bill next year. Here are some steps to help you get started:
- Assess any problems you had this tax season. Did you wind up owing a significant amount, or did you overpay? Were there potential deductions you missed, or some you could take advantage of with the right documentation? If you used a tax preparer or work with a tax professional on an ongoing basis, ask for their recommendations on ways to lower your taxes in the future.
- Start organizing now. While this year’s tax season is still fresh in your mind, make a list of the documents you needed to file this year’s return, as well as any new documents you anticipate needing when you file next year. Set up a collection system for receipts, donations, medical expenses, and any tax forms you’ll need.
- Keep track of your expenses throughout the year. One of the most important things you can do to make tax season easier is to keep track of your expenses throughout the year. This includes everything from receipts for home improvements that are eligible for a tax credit, such as solar panels, to charitable contributions and other documents. By keeping track of these expenses throughout the year, you’ll have an easier time preparing your tax return when the time comes.
- Review your tax withholding. If you received a large refund this year, it may be a sign that you’re withholding too much money from your paycheck. On the other hand, if you had to pay a large amount to the government, you may need to increase your withholding. Talk to your employer or a tax professional to review your withholding and make any necessary adjustments.
- Contribute to retirement accounts. Contributing to retirement accounts such as a 401(k) or IRA can not only help you save for retirement but can also lower your tax bill. The contributions you make to these accounts are typically tax-deductible, which means you’ll pay less in taxes now and have more money saved for retirement.
- In the fourth quarter, review your tax situation with a professional. Your financial advisor or tax professional may be able to help you identify other ways to lower your tax bill further before the end of the year.
- Make two appointments with yourself. Place time on your calendar during the last week of January to review which documents you have, and which ones you still need. If you are missing some – such as a Form 1099 for a freelance project – you can reach out to see if they have been mailed. Create a second appointment in mid-February to organize all of your tax documents and get them to your tax preparer. If you prepare your own taxes and have everything you need, you can start your returns.
If your taxes are particularly complex, working with a professional who understands the nuances of the tax code may be your best bet when it comes to making your tax season less stressful. But getting organized and staying vigilant may give you the next best opportunity to take advantage of any potential tax credits or deductions. Want to learn more about tax planning? This blog explains the benefits, as well as reasons why it should be a year-round priority.