We may have just rung in the new year, but now is the perfect time to start thinking ahead to tax day. If you usually find yourself scrambling to get all of your documents together on April 15th, a little advance planning and work can make filing go much more smoothly.
While tax preparation and filing will never be fun, taking these three steps will help make it less of a dreaded chore.
1. Sort through your previous year’s receipts in the first week of January.
If you’re like me, your organization system for tax involves throwing all of your receipts — work-related purchases, charitable donations, co-pays, mutual fund statements, and mortgage information — into a single shoe box for dealing with “later.” Last year, I didn’t bother to go through the stack before I started throwing in receipts for the new year, which meant I had even more of a headache sorting through five quarters worth of receipts in early April.
This year, I’m going to sort through my receipts over the first weekend of January. Even before I receive my first W-2 or 1099 form, I’ll have all of my receipts gathered together and sorted into neat categories. I’ll know long before it’s time to file if there’s any missing information, and I’ll be able to get copies of it in time.
If you’re not certain of what kinds of information you’ll need in order to file, the IRS offers publication #552, “Recordkeeping for Individuals.”
2. Double-check the information on your W-2 and 1099 forms as soon as you receive them.
You can typically expect to receive all of the tax information from your employer and investment firms by the end of January. Rather than put these forms aside until you’re ready to deal with your taxes, take a moment to review these documents and make sure all of the information is accurate. It will be much easier to correct a mistake when tax day is still several months away.
3. Max out your IRA contribution and keep your proof of contribution.
In 2012, the maximum contribution you can make to an IRA is $5,000 ($6,000 for taxpayers over 50). You have until April 15, however, to make that full contribution for the previous year. If you have not yet maxed out your contribution, the first few months of the year are a good time to work on setting aside enough money to reach the maximum.
Make certain that you keep careful records of your contributions, because you’re eligible for income tax deductions for contributions to traditional IRAs. That means that a taxpayer earning $50,000 per year who contributes the maximum of $5,000 will only have to pay tax on $45,000 of earnings. So not only does contributing the maximum amount better prepare you for retirement, it also helps your current tax burden.
The Bottom Line
Like any large and complicated chore, preparing and filing your taxes can be made more manageable by breaking it down into smaller chunks. Work on small parts of your tax preparation throughout the end of winter and into early spring, and April 15th should be a breeze.
Have you made any preparations for your upcoming taxes?