How to Prepare for a Stress-Free Tax Season

The mere mention of April 15th can raise the level of stress and anxiety for many of us in the United States. Almost everyone I talk with about it, dreads this time of year. With a little more than a month until the due date, we are in the middle of what is affectionately known as Tax Filing Season. It officially opened this year on January 29th by the Internal Revenue Service (IRS). And since the usual due date falls on a weekend, tax returns are due April 17th. Woo-hoo! 

Many of you have accountants who prepare this annual government-required report. While others employ software geared toward the do-it-yourselfer. My husband proudly admits to being a member of the latter group, which is not new for me.

I grew up watching my father prepare income taxes for our household as well as for friends and other family members. I would not ever claim to be a tax expert but I have learned a few things over the years that you may find helpful during this season, and beyond. 

Whether you have someone else complete your taxes or not, the most important act on your part is to prepare. Preparation is the key to this season advancing with some level of ease and reduced stress.

PERSONAL INFORMATION

In addition to full names, have the social security numbers of all who will be listed on your tax return. That would be you, your spouse (if you are married), and any dependents that are in your care. Also, it would be helpful to have your bank account number and your bank’s routing number. This will make it easy to set up a direct deposit for your tax return (or payment). You can decide that part once you’ve finished preparing the return.

INCOME INFORMATION

Any employer that you’ve had in the past year should’ve sent you a W-2 form by now. If you are a contract worker and earned $600 or more from any one client, you would need to obtain a 1099 form from them. Complete a W-9 form for each client that paid you over the threshold. Send it to them. They will generate the 1099 form for you to include in your tax preparation. For example, if you had five clients in the past year, but only four paid you more than $600, then you’d obtain only four 1099 forms.

Other documents that are important to prepare include proof of additional income from investments, bank accounts, social security benefits, local or state tax returns from the previous year, etc. Some financial institutions still send tax documents with this information in the mail. Many, however, offer this documentation online. See their individual websites for instructions on how to obtain this information.

INCOME ADJUSTMENTS

The IRS has outlined adjustments that could reduce your tax liability and increase your chance of receiving a refund. Contributions to a retirement account, tax credits to homebuyers, health insurance costs of the self-employed, and moving expenses are a few of the eligible adjustments available to tax filers. A complete list is available on the website for the IRS. See Itemized Deductions. Then, prepare your documentation accordingly.

CREDITS AND DEDUCTIONS

Tax credits and tax deductions are available also for eligible filers. Charitable contributions and donations fall in this category. Have you donated to charities this year? Dig up the receipts. The $50 that you gave to the March of Dimes may not seem like much. But when you add that to your other donations throughout the year, you may have a sizable total.

If you contributed online, the organization may have sent you a ‘thank you’ note via email. Most organizations now include a receipt appropriate for tax filing within those emails. This is not limited to monetary giving. If you’ve given clothing and other goods to a charity, the value of the items may be claimed for a tax deduction.

Other areas to consider: Education costs, childcare costs if your child(ren) are under 13 years old, and qualified business expenses such as the use of a home office or use of your car for business. Give yourself enough time before the deadline in April to carefully consider your options. You don’t want to leave money on the table because you didn’t have enough time to identify the potential deduction and find the documentation to back it up.

Look, paying taxes is a necessary responsibility for every income-earning adult in the U.S. Rather than allowing it to be a source of worry and fear, face it head-on. The first step to doing that is to prepare. If you feel overwhelmed by the density of the process and the paperwork, give the IRS a call. Believe it or not, they are very helpful. Just don't call a few days before taxes are due. They will be less available for extensive assistance. You can imagine how swamped their office gets! 

Ben Franklin had it right: By failing to prepare, you are preparing to fail. This applies to almost everything in life. Most certainly, it is true for Tax Season. Preparation paves the way for a smooth experience.

If preparation has been an issue for you in the past, today is your opportunity to pivot. Prepare as best as you can for this year’s filings. Then set yourself up for future freedom in this area.

Get a legal size, green file folder. (It can be any color you’d like. I suggest green because it’s all about the money, money, money! 🤑) Keep the folder at the front of your file cabinet or box. Drop every tax-related document that you receive throughout the current year into that file. This time next year, you will have everything you need in one place. All you’ll need to do is sort and attach your documents where appropriate.

Just because you’ve not been on top of this in the past doesn’t mean you can’t be. Today, make the decision to be different. I'm rooting for you! 🤗

Until next time…

XO,

R