Filing Taxes: Why You Should Start Now
The new year is upon us, and tax day, April 15, is months away. Sounds like a long time, right? Well, we all know from past experience that "a few months" can quickly slip through time.
We've all put off tasks only to find ourselves scrambling to complete things at the last minute, and it is stressful and can result in doing the job poorly, just to get it done. Whether you are doing your tax preparation yourself or filing with a professional tax service, waiting until the last minute can be expensive or even lead to mistakes. But what can actually be done before the W-2 and other crucial forms arrive?
Study
If you are new to filing taxes beyond using an EZ form, or you've had changes in the details surrounding your job or business, you'll want to become familiar with what kinds of deductions you may be able to take and to know if you have the proper documentation. For example, if you traveled for work last year, not all of the expenses may be covered, but there may be some you've overlooked. If the employer paid for airfare, then it can't be claimed, but if you paid fees for storing a car at the airport or paid for a cab to get there, those expenses may or may not be deductible. The more you know now, the more likely you'll be able to reliably add up savings when April 15 rolls around.
Even if you're an old pro at filing taxes, there are changes to the tax code this year you'll want to understand. Most are changes in the way brackets are determined. Hopefully, you have at least a rough idea about how much your gross income was in 2020, and can start preparing now if you may fall into a higher bracket.
If you plan on using a tax professional, be sure to ask what kind of changes you should be aware of, based on your income and tax bracket.
Gather materials
Hopefully, if your career or other activities lead to a lot of deductions, then you're very good about keeping your paperwork in good order. Maybe you have an envelope in the car for toll booth receipts and keep a mileage log, or you have some special system of filing receipts for business purchases. If so, you're probably in great shape with everything you need to file your taxes. Reviewing your paperwork now to make sure the records are as meticulous as you believe is a smart step to take.
If you don't have a good organizational system or find that you don't stick to good habits, then it's crucial to get to work on pulling paperwork together now. Also, if you plan on using a tax professional to file for you, it's a good idea to start gathering your documents now in order to avoid the rush and busy tax season.
If your paperwork isn't in order, it's likely going to take more time to pull together than planned, and no one wants to miss out on a any deductions simply because they can't find the paperwork needed to file.
Put time on your side
If you qualify for a refund and file early, you will likely avoid the rush and may get your refund check back much more quickly. If it looks like you will end up owing taxes, early planning will help you save up for the amount by the payment deadline and avoid penalties. You don't want to discover the news that you will owe money the same day you have to pay it.
Assess your system
If you've had a good system of organization, then you should be able to smoothly file and access all of your paperwork and important documents, well before April 15. If your system is lacking, make notes about problems you're having and devise a better strategy to get organized. If you're struggling this year to come up with everything you need to get your taxes done, then learn from your mistakes to avoid the problem next year.
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