Taxes. The mere mention of this word can send shudders down our backs and keep some of us up late at night. No matter how you slice it, they are a necessary evil and need to be taken care of each year. By following these easy steps, you’ll be on your way to a painless, smooth tax season. Before I dive into this topic though, I have to mention that I am not a tax professional and if you have specific questions about your situation, you should consult a professional tax advisor.
Create a Tax Organization System
When it comes to filing your taxes with ease, creating and maintaining an organization system is key. If you establish a year-long system for keeping your receipts and paperwork, you can save yourself from hours of frustrating searches when it’s time to file.
A simple, inexpensive system is to have an accordion file or set of file folders that has a labeled tab for each type of input (deductions such as mortgage interest and charitable giving, credits such as academic expenses, business expenses/receipts, etc). Your system should also have a place for incoming W2s, 1099s and any other forms that are typically sent out each January/February as well as your past tax returns for easy reference (it’s recommended you save 7 years of returns at a time in case of the unfortunate occurrence of a future audit).
Determine Your Filing Method
With your paperwork and receipts organized and at the ready, your next step should be to decide how you’d like to file. You have a variety of options from doing it yourself on paper, doing it yourself with online tax prep software or hiring a professional.
Whatever option you decide to go with, make sure to do your research. If you choose to go it alone, enlist a helper to double-check your math or consider going to a professional to have them do a quick once-over. If you’re unfamiliar with online tax software, make sure to navigate your way through the system’s welcome tour to familiarize yourself with what you’ll need to do. And if you choose to hire a professional, get references and check credentials–this is not the time to go to the Walmart tax kiosk!
Block off uninterrupted time
Now that you’re ready to begin your return and file, make sure you have plenty of uninterrupted time to complete the necessary steps. Whether it’s going to the library, closing your office door or sending your spouse/partner out with the kids (just make sure to review the return with him/her before filing), ensure you’ll be free from distractions and can completely focus on the task at hand.
Maximize your deductions…
Common deductions include property taxes, mortgage interest, education expenses, dependents and business expenses. While most people simply take the standard deduction on their returns, it may be in your best interest to itemize if you have less common deductions such as state sales tax (did you buy a new car or other major purchase this year?), student loan interest, relocation and job searching costs not reimbursed by your employer, military reserve travel expenses, childcare costs and commuting expenses (train and subway passes) that aren’t reimbursed by your employer. You’d be surprised how much these can add up to!
…but don’t go overboard
Just be careful not to go too crazy with the deductions and credits–especially if you’re self-employed, as inflated deductions can be a source of an audit flag. Be careful to only deduct expenses you can prove you paid for with receipts and/or credit card statements and don’t set yourself up for unnecessary risk (for example, if you made $30K last year but are claiming charitable giving deductions of $10K, there might be someone at the IRS who raises an eyebrow at that).
Photo courtesy of: PT Money
This is what I’ll be doing this week and although I don’t look forward to it I am organized. This will be the first time I do my own taxes in Canada so wish me luck, I might just need it! Cheers
Canadian Budget Binder recently posted..Mr. CBB’s Meatless Sloppy Lentil Joes
Sounds like fun Mr. CBB!
Good luck, we passed ours off to the CPA two weeks ago so hopefully we’ll get good news here soon. )
I’m a huge follower of the last two, I explore every possible deduction that’s available. But I also temper that with the thought that’s it’s not worth a few extra bucks to risk an audit. Not that an audit would hurt me financially, but it’s got to be a huge Pain the rear! I do have a folder that I start of the beginning of every year. Anything that’s tax related goes into that folder as the year goes by so I have it all ready when the rest of the tax documents come.
Jose recently posted..The Gems – My Favorite Posts of February 2013
We are the same way Jose! Especially considering that we itemize we’re always looking for things that we can legitimately write off.
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Just made mine thanks to all the reminders around here, in under 30 minutes! I had kept a file with all the log in from last year, that I always lose and apply for new one so it was easier this time around…
pauline recently posted..Carnival of Financial Independence, first edition
On the last item, it’s definitely easy to go overboard. The cool thing is with TurboTax it not only shows you your risk of audit but you can also pay $60 to be completely covered by them and their lawyers in case you do get audited. $60 is a lot but if you’re running side businesses and you’re getting a lot of money back, $60 is a small price to pay for sound sleep.
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