Tax season can be a stressful time of year for many, but with a little planning and organization, you can make the process smoother and less overwhelming. The deadline for filing your taxes is typically April 15, so it’s important to get a head start and stay organized. Here’s a guide on how to prepare for tax season and what to do before the deadline.
1. Gather All Necessary Documents
One of the most important steps in preparing for tax season is making sure you have all the necessary documents at your fingertips. Common documents you’ll need include:
- W-2s : For employees, your employer will provide you with a W-2 form that details your wages and taxes withheld.
- 1099 Forms : If you're a freelancer or contractor, you might receive a 1099 form, which reports your earnings.
- 1098 Forms : These are used to report mortgage interest and tuition payments, which may qualify for deductions.
- Receipts for Deductible Expenses : Keep receipts for any work-related expenses, medical costs, charitable donations, or home office expenses.
- Investment and Retirement Account Statements : If you have investments, 401(k)s, IRAs, or other retirement accounts, gather the necessary documents to report earnings and contributions. If you have accounts at Charles Schwab with CWG, you can login HERE and click ‘Statements & Tax Forms’ at the top: Schwab is still populating forms, so yours might not be there quite yet.
2. Know What Deductions and Credits You Qualify For
Tax deductions and credits can significantly reduce your taxable income and the amount of tax you owe. Some common deductions and credits include:
- Standard vs. Itemized Deductions : The IRS allows you to take a standard deduction or itemize your deductions (such as medical expenses, charitable donations, mortgage interest, and property taxes). Be sure to compare which option will save you more.
- Child Tax Credit : If you have dependent children, this credit may reduce your tax liability.
- Student Loan Interest Deduction : If you’re paying off student loans, you might be able to deduct up to $2,500 in interest paid.
- Home Office Deduction : If you work from home, you might be eligible for the home office deduction (even if you’re a remote worker).
Consult with a tax professional to make sure you’re not missing any deductions or credits you’re entitled to claim.
3. Double-Check Your Filing Status
Your filing status will determine your tax rate and available deductions. Make sure you select the correct filing status based on your situation. Here are the five filing status categories:
- Single : If you're unmarried and not living with a partner.
- Married Filing Jointly : If you're married and filing with your spouse.
- Married Filing Separately : If you're married but choose to file separately from your spouse.
- Head of Household : If you're unmarried and support a dependent, such as a child or family member.
- Qualifying Widow(er) with Dependent Child : If you’ve recently lost your spouse and have a dependent child.
Each filing status has its own rules and benefits, so make sure you choose the right one to maximize your refund or minimize your tax liability. Have you talked to your financial advisor about this? You might want to schedule HERE !
4. Pay Any Taxes Owed Early to Avoid Penalties
If you owe taxes, the IRS charges interest and penalties on late payments. To avoid surprises and additional fees, consider paying your taxes ahead of time if possible. You can make estimated payments throughout the year to avoid a large tax bill come April 15. If you don’t have the full amount to pay, the IRS offers installment agreements that allow you to pay off your balance in smaller amounts over time. This is another great topic to discuss with our advisor over a quick call .
5. Stay Organized!
And remember, if you are a Financial Planning client with Colorado Wealth Group, we need a lot of the same documents you are already gathering for tax season: save those into your Client Portal before your Plan Update Meeting. Questions? Email [email protected] .
Know that you might need some help with your financials and tax planning but aren’t a CWG client yet? Schedule a call HERE to see if we are the right fit for you.
