Top 5 Tips to Prepare for Tax-filing Season
We’re already past the first month of this new year. With the new year comes tax season, and the best way to have an easy tax season is to plan ahead for it. In this blog, we have a few tips to help you prepare for the upcoming tax season so that the filing process of your income tax return is hassle-free and smooth.
- Take the time to gather your documents, tax forms, and bank statements:
Though it may seem early, to avoid any mistakes while filing your taxes, it’s better to keep all your documents handy in one place for an easy filing experience. Moreover, if you gather everything in advance, you will make sure you don’t forget anything. Put all the forms, documents, statements, etc. in a file, and you will be ready to file your tax return when the time comes.
- Decide who prepares and files your taxes:
Preparing and filing your taxes is a tedious job and sometimes gets complicated if you had any major life changes in the last year – like starting your own business or getting married. Consequently, you may need to consult or hire a Certified Public Accountant (CPA) or a tax professional to prepare and file your taxes. Don’t wait until April to make this decision as it could end up costing you, because tax professionals will charge you more as the deadline inches closer.
- Max out retirement plan contributions:
If you have been stingy about funding your employer-sponsored 401(k), 403(b), or other tax-deferred retirement accounts, try and increase your contributions. By adding more money to these accounts, you can reduce your taxable income for the year to a great extent, thereby reducing your tax bill. You know that you will only be taxed when you withdraw it. If you are unable to make the maximum contributions, at least try to match the employer contributions.
Please note that in 2019, the retirement plan contribution limits are $19,000, plus $6,000 in catch-up contributions if you’re 50 or older. The limits are increased to $19,500 and $6,500 in catch-up contributions for 2020. If you have an individual retirement account through a bank or a broker, the contribution limits for 2019 and 2020 are $6,000 plus $1,000 in catch-up contributions.
- Reap more benefits by accelerating your deductions rather than waiting until next tax season:
You can find a number of ways to increase your deductions. One way is to try to make an additional payment on your mortgage before year-end, so that you can deduct that additional interest.
- Protect yourself from tax scams:
As the tax deadline nears, many people will get text messages, calls, and emails from entities that claim to be the Internal Revenue Service (IRS). Don’t ever respond to messages, emails, or calls claiming to be from the IRS or the U.S. Treasury. Moreover, don’t believe individuals who guarantee to get you a bigger tax refund, as this may lead you into trouble.