How to Get Ready for Tax Season

The April 15 tax filing deadline is still a few months away, but if you’ve ever stressed about or struggled through the process of trying to beat that deadline, you know that putting in a little time and effort before April 15 rolls around can pay off handsomely. Here are some steps for getting ready for the upcoming tax season.

Start Collecting All Relevant (and Potentially Relevant) Documentation. Sometime in mid to late January the financial institutions you do business with will start to send you various types of tax forms (the most common of which are likely to be a various types of 1099 Forms and the Form 1098 Mortgage Interest Statement). If you haven’t done so already, create a separate file or folder for your tax records once you receive your very first form.

Whenever you have a little time, start collecting additional financial and tax records to place in that same folder. Collect all receipts for business related expenses, educational and job training expenses, any year-end credit card or brokerage account statements (these can often help you identify certain tax relevant expenses and gains), and any other types of forms or records that relate to transactions with tax implications. Err on the side of being over-inclusive– if it might be relevant to your upcoming tax return, then include it in the folder for now.

Review Last Year’s Return. Another good way to start getting ready for the current tax season is to go back and review the tax returns are filed over the past couple years. This can be a useful way to refresh your memory on different types of deductions and credits that you may have available to you again this year.

Make a List of Your Changed Circumstances. Of course, your tax filing situation this year may be different from years past if your circumstances have changed. Before you begin preparing your return it would be useful to make a list of all tax relevant circumstances that changed in the past year. Did you get married or have children? Did she start a business? Did you buy a home? Could you change jobs or careers? Did you inherit money? Did you make or liquidate any business investments? All of these changes can have significant tax consequences.

Familiarize Yourself With Tax Law Changes. The tax laws and regulations change from year to year, and sometimes those changes can be significant. Even if your income is the same as it was last year, you might find yourself topping out in a different income tax bracket, paying a different amount of Social Security tax, paying different rates on any dividends or capital gains you may have, and paying different amounts in the Medicare surtax.

On the other side of the coin, you may see favorable adjustments to the personal exemption amount you can take, as well as the standard deduction if you don’t itemize your deductions. Similarly, you may see increases in the amount that you can save during the next tax year in your 401(k) or IRA, and if you’ve turned 50 you can now start to take advantage of the higher “catch up” contribution limit. Learn more about the recent changes to the tax law to avoid missing out.

The best way to make sure you don’t overpay on your taxes is to begin the tax filing process as early as possible

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