Prepare Your Family’s Tax Return
It’s tax season yet again and if you’re anything like me, you’re still sitting on a big pile of paperwork that needs to be sorted through before you can get ‘er done. Here’s how to make the entire process less stressful.
1. Become friends with a Big Red File
Every January I stick a brand-new bright red file folder in the front of my file cabinet where it’s easy to see and quick to be found. Throughout the year, as I make tax-related purchases, contributions or donations, I stick the receipts in that folder. I do this all year long. (This is a perfect routine to start right now). When the following January arrives and I begin receiving our official tax documents, they go in there too. The key to your tax filing success is keeping everything together in ONE PLACE, so if necessary, get yourself a big red BOX. If you can see and find your box, you are half way there.
2. Deal with the logistics
I tend to think that preparing your taxes, whether you do it yourself or hire a professional, is something best done ALONE. It requires space to spread out, relative peace and quiet. Have your spouse get the kids out of the house or at least run interference, so you can concentrate. Pour yourself a glass of wine to chill your nerves if necessary.
3. Start adding it up
Sit down with your Big Red File, a calculator, a pad of paper and a pencil and simply start adding it up. I generally try to get at least a little organized first and separate out business receipts from personal ones. Then I make a stack for income, one for deductions and one for everything else and start listing the items on separate sheets of paper (one for income, one for deductions, etc). When I get to the bottom of the stack, I total my columns and try not to freak out.
4. Prepare yourself or better yet, outsource to the pros
I always do my taxes myself, usually even by hand, but that’s because I LOVE filling out forms and have read enough tax returns to make the average person go blind. But unless your return is ridiculously simple (an EZ form, for example) (and lucky you!), I highly recommend using tax preparation software like TurboTax or TaxCut. However, even better than doing it yourself is hiring a tax return professional like a CPA or a registered agent to prepare it for you. The hundred bucks you spend having someone else do the dirty work is well worth it for the peace of mind it provides, not to mention the additional benefit of having a professional to hold your hand if the IRS takes any issue with your return.
5. Most importantly: adjust your withholdings
This may sound crazy, but come April 15th, nothing makes me angrier than a tax refund. NOTHING. A tax refund is really nothing more than an interest-free loan you’ve given to the government for a year, which is not much better than saving money under your mattress.
A much better strategy is to adjust your withholdings so that ONLY the money you actually OWE is removed from your paycheck. Talk to your employer and have them adjust your exemptions so that less tax comes out every month. (More exemptions = less tax removed from your income.) Then automatically divert the difference into a savings account and employ your best self-discipline to let that money grow until next April. The end result will be more cash in your pocket!
Photo by kozumel