By now you know how this tax season will go--you've either got your forms and supporting documents sitting in neat piles ready to go, or you're planning a late night before the deadline. Either way, here are few things you can do, starting now, that will make next year's tax season easier.
Find out what's changed There have been lots of changes in deductions, credits, and tax rates for 2013, arising from the "fiscal cliff" deal. More changes may be coming in the form of a "grand bargain." Keep up-to-date with how the changes will affect your tax picture.
Be aware of the impact of changes in your life as well. As events occur through the year in your finances and family, ask yourself how they might affect your taxes.
Adjust your withholding Whether you are paying up or expecting a refund, the amount should not be more than a few hundred dollars at most. Use the IRS website or any of the other withholding calculators available to adjust the amount the agency withholds from your paycheck. This will help you avoid a big tax surprise.
Surprises include a big refund. Getting money back from the IRS is usually not the most efficient way to manage your taxes, as you are essentially lending the government your hard-earned money at a zero percent interest rate. Instead of a big refund, aim for a smaller one - or even a small balance due, as long as you've saved the money to pay your balance off as you earn it.
Lower your taxes by every (legal) means Our tax system is voluntary. No, this doesn't mean that you can volunteer not to pay, but it does mean that you only have to pay your fair share. There are many ways to legally lower the amount of tax that you owe. Take the time to research and understand all that apply to you including deductions, exemptions and credits - all three allow you to reduce the amount of tax that you pay.
Being aware of these deductions and credits ahead of time will give you time to send manageable payments to a tax-deferred IRA or adjust your 401(k) contribution to take full advantage. You'll also be more aware of which receipts, bills and other documents to keep in your tax file to support the deductions or credits you are claiming.
Know before you file Tax time does not need to be a dreaded unknown. Do a rough draft of your tax return for 2014 using online tools periodically over the course of this year to control what the bottom line will look like in April. Even a ballpark idea of your situation will lower that anxiety that we all feel at this time of the year.
Start now You should spend as much time preparing for your taxes as you do in planning your family vacation. Just as you collect brochures, search for deals online or discuss destinations with your spouse, you should assemble your tax related information over the course of the year, not right before the deadline.
Is there anything I can offer those of you who are facing a frantic rush to the mailbox (or your accountant)? Whether you prepare your tax returns yourself, use computer software, or pay someone to do your return for you, be sure to look the forms over prior to mailing them in or filing them electronically. Be sure to check the spelling of your name(s), your Social Security Number(s), and don't forget to sign your returns. Simple mistakes on your return can increase the amount of time that it takes to get your refund, or even cause the IRS to review or audit you.
Most of all, remember that it doesn't have to be this way.
Geoffrey C. Cable is managing director at Destination Wealth Management.