How to Best Prepare for Tax Season

2019 Tax Jelly Bean Guess WinnerYou might not be ready to start thinking about taxes yet. It probably feels like the tax season just ended, even if the deadline was months ago. However, you can benefit from starting your tax preparation now. As 2021 comes to a close, you can make next April 15 easier to deal with. Follow these tax preparation tips and best practices to make tax season a breeze.

Tax preparation tips

Here are our top tips to help you with your taxes. For answers to any questions, reach out to your accountant:

  • Reflect on last year’s taxes: Not many people look back on tax time fondly. If money was especially tight for you last year, as it was for many people, taxes can be quite stressful. Look at your 2020 return and identify the areas where you felt you were stretched especially thin. Then think about how you can solve those problems—perhaps by setting more tax money aside, or working with an accountant to minimize your tax liability.
  • Set up an organizational system: Don’t just throw your tax paperwork in a shoebox and wait to tackle it next April. Instead, set up a simple organizational system that you can use throughout the year. Whether it’s spreadsheets or a few paper folders, the time you spend now will pay off later.
  • Set aside your deductible documentation: If you want to deduct anything from your taxes, you’ll need to keep documentation. This is especially important if the IRS picks you for an audit. Now that you have an organizational system in place, use it to set aside your important paperwork.
  • Plan for estimated taxes: When you underpay on taxes, the IRS can hit you with penalties. Those who expect to pay $1,000 or more at tax time should be making quarterly payments.
  • Keep track of your charitable contributions: When you plan to deduct charitable contributions from your taxes, you’ll need to save the receipts. Separate them from other deductions in your organizational system.
  • Decide how much tax you want withheld: Think about how much tax you typically withhold. If you like bigger refunds in April, consider increasing your threshold. In contrast, you might find yourself wanting a bigger paycheck to put to use throughout the year. In that case, reduce your withholding—but make sure you’ll have enough money to cover any owed taxes at the end of the year.
  • Consider increasing retirement savings: If you want to reduce your tax liability, put some money into your 401(k) or IRA. Remember that there are limits to how much you can contribute each year.
  • Check on filing status: Finally, don’t forget to check your filing status. If you plan to change your marital or filing status this year, it may be beneficial to make the switch now.

If these tax preparation tips and best practices left you with questions, you can benefit from the help of a certified public accountant. At Lion Rex ATA Inc., we can help you strategically plan for tax season. No matter what your goals may be, we’ll help you reach them. Call us today to get started.

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