Every year you promise yourself that this will be the year you file your taxes early. And every year you’re rushing to file your return by midnight on April 15th.
While it doesn’t matter to the IRS whether you file on February 1st or April 15th, there are some distinct advantages to getting your taxes done early. For starters, if you’re owed a refund, the sooner you file, the sooner you’ll get your refund money in your bank account. Plus, filing early may help lessen the risk of tax identity theft: the sooner you file, the less time is available for a thief to file a fraudulent return using your personal details.
So this year, you’re going to get a jumpstart, right?
Here are eight tips to help you get ready for tax season now, rather than waiting until spring.
1. Get last year’s tax return
Don’t start your tax planning from scratch. There’s a lot of information which carries over from year to year. You can save yourself some time and shortcut the prep process by first digging out last year’s return.
If you didn’t file taxes last year but will need to file this year, you’ll want to gather all of your personal documentation, including your social security number or tax ID. While you’re at it, get the information for everyone else who will be on your tax return, including your spouse and dependents. You’ll also want to make sure you have your driver’s license or state ID, if possible. Some tax preparers or tax software will ask for your driver’s license number when you file.
2. Do a paycheck checkup
Does your employer withhold taxes from your paycheck each month? It’s important to make sure that your employer is withholding enough taxes. This way you’re not stuck with a big tax bill and penalties when tax time rolls around.
You can use the IRS Paycheck Checkup tool to see if you’re on the right track. If not enough is being withheld from your paycheck, you can ask your employer to update this immediately and make any necessary additional tax payments required by the end of the year.
3. Make a list of all sources of income
You may have multiple sources of income and they’ll all need to be included on your return when you file. While you won’t have totals or official forms yet, it’s a good idea to make a list of your sources of income so that when tax time rolls around, you have all the documents you need to collect.
Here’s a list of potential forms you’ll need during tax time:
- W2: If you’re employed, your employer will need to send you a W-2 by January 31, 2020. This form details your earnings (wages, tips) as well as your federal and state tax withholdings.
- 1099 Misc: Work as a freelancer? Each client should send you a 1099-misc with information about how much they paid you during the year. Starting a list of your freelance jobs now will help you make sure you receive all required forms for your taxes.
- 1099-G: If you received any unemployment benefits during the year, you’ll want to put this form on your list. You’ll need it to officially report the unemployment benefits you received.
- 1099-Div or 1099-Int: If you have cash or investments that pay interest or dividends, you should get one of these forms from every financial institution you have an account with. These forms detail any dividend or interest payments received during the year.
- 1099-R: If you received any money from an annuity, IRA, or pension you’ll need to have this form to file your taxes.
- Schedule K-1: Part of a partnership? Add this to your list of documentation needed. Any partnership income received during the year will be reported on a schedule K-1.
This isn’t a complete list of forms or documentation that you may need, but it’s a good start.
4. List all potential deductions
Don’t skimp on this section. Deductions, while time-consuming to keep track of, can save you a lot of money. Deductions reduce your taxable income, which can reduce the amount of taxes you need to pay.
You’ll want to start gathering documentation for anything that could possibly be a deduction, including:
- Homeownership deductions: mortgage interest statements, real estate and personal property tax records, receipts for energy-saving home improvements.
- Medical and health insurance deductions: track down the amount paid for health insurance as well as what you paid to doctors, dentists, and hospitals.
- Education deductions: keep track of tuition paid to education institutions, receipts for education expenses, and student loan interest paid.
- State and local taxes: collect documents showing everything you’ve paid in state and local taxes for the year.
- Charitable deductions: hold onto receipts for any charitable contributions you’ve made throughout the year.
While the standard deduction may work out better for you than itemizing your deductions, it’s still good to have everything gathered so that you can decide what to do come tax time.
5. Consider retirement plan contributions
One way to lower the amount of taxable income you have for the year is to make allowable retirement plan contributions. While you technically have until the filing date to contribute to an IRA, why wait? Consider looking into options available to you to contribute to a retirement plan and reduce your tax liability.
6. Decide whether to DIY or use a preparer
Are you going to file taxes on your own or hire professional help? Don’t wait until April to make this decision — you’ll likely won’t find many tax professionals willing to work with you that late in the game. There are plenty of programs available to help make filing on your own simple, but many people still choose to bring in a professional to help them. If you’re planning to hire help, now is a great time to find the right person.
If searching for a tax professional, you can try using the IRS Directory of Federal Tax Return Preparers.
7. Schedule an appointment
If you know that you want to enlist the help of a professional to file your taxes this year, reach out to them early. You can get an appointment with a tax preparer before they book up and they’ll be able to provide you with a list of documents needed to file your taxes. The more organized you are, the easier (and possibly cheaper) the process can be.
8. Think about an extension
Even if you start early, there may be reasons that keep you from filing your taxes by April 15th. If you know now that you need extra time, consider filing an extension. The IRS will grant an automatic six-month extension when you request one.
But keep in mind that this extension does not give you extra time to pay taxes that you owe. If you think you’ll owe taxes, estimate how much you will owe and start saving money to make that payment. April 15th will come up quickly and you’ll want to have that money ready to hand over to the IRS to help you avoid late fees and penalties.
Stay one step ahead
If you want to make tax season as easy as possible, now is the time to get a head start with a little prep work. This way you can work on getting your potential tax refund as fast as possible and deposit that cash right into your savings account!
This page is for informational purposes only. Chime does not provide financial, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal and accounting advisors before engaging in any transaction.