5 Early Steps to Get Ready for Tax Time

0
288
5 Early Steps to Get Ready for Tax Time


2018-01-12 15:00:00


This story originally appeared on Due

Happy New Year! While you are working to nurse off that hangover or catch up on sleep, last year is over and it’s time to start thinking about one of two of life’s biggest guarantees: taxes. While you may not be as excited about your taxes as this money nerd, tax season is a great opportunity to review your finances. Getting organized early can save you hours of hassles when it comes time to do your taxes or hand them over to your accountant. Follow these simple steps to get on track for a low stress tax filing in April, or maybe even a little early!

1. Make an account list

Start your tax preparations by making a list of all of your financial accounts. If you run a business, create a personal account list and business account list so you have a full inventory. Include bank accounts, credit cards, investments, retirement and every other financial account you have. If you have any open and unused accounts, list them out too. You don’t want to miss a detail here.

If you find non-credit accounts that are stale, old and inactive, there is no better time than the present to close them. There is no point in keeping old bank accounts open if you don’t use them. Then make sure all of your accounts are accounted for in your personal or business bookkeeping software so you don’t miss any transactions. If you forget to write off an eligible business expense, that is money you are leaving on the table for the IRS that should be in your pocket!

2. Catch up on bookkeeping

Have you ignored your bookkeeping tasks since last tax season? It’s time to get caught up! You’ll need copies of your annual income statement, and possibly your balance sheet, to file your taxes. The income statement, also known as a profit and loss statement or P&L, is the core document used to prepare your taxes for your business. Depending on the registration of the business you run, you may also be required to list assets and liabilities on your taxes, which comes from the balance sheet.

I update my books the around the 10th of every month so I never have more than 30 days of transactions to review, but if you have 300 or more days of transactions to review, it will take some time to get everything sorted out and put together. Remember that errors in your bookkeeping can lead to errors on your taxes. You don’t want to pay too much and lose out on profits you should keep. Similarly, you don’t want to underreport and find yourself on the wrong side of an audit, fines, and penalties. Making sure your books are done, and done accurately, is key to tax season success.

3. Put together a tax form checklist

As a freelancer, I expect 1099 forms from about a dozen companies where I earned more than $600 in the past year. I’m expecting 1099 forms from my bank accounts, investments and mortgage. Other common forms come from student loan servicers, universities, Social Security and your employer if you have a part-time or full-time W-2 job.

I like to put my checklist together in a spreadsheet. I used to use an Excel file in my Dropbox that I could access on my phone or any computer, but have since upgraded to Google Sheets, as I can add a checkmark faster from my phone with Sheets. If you don’t like the digital method, you can print your spreadsheet out or write out a list using paper and a pen, if you still keep them around. The important part is making sure you have every tax form you need before you file your taxes. If you miss something, you could have to file an update to your return, which is a hassle that can be expensive if you need to pay your accountant for round two.

4. Create a tax form folder (digital and physical)

When your tax forms arrive in your mailbox or inbox, it can be easy to put them aside to worry about later. This is a perfect recipe for a mistake or a lost form, however, so it is best to build out your organization system before your first tax forms arrive. Tax forms can hypothetically arrive as early as January 1, but most won’t come until late January or into February. Some investment related forms might not show up until after the official tax due date. The same may be true of K-1 forms if you are a partner or owner in a multi-member LLC or S-Corp.

Every time the postman (or postwoman) drops off an envelope labeled “important tax information,” open it up and put the form in your physical folder. Every time you get an email that a digital form is ready, download to your digital folder. I like to use Dropbox so it is both backed up and accessible anywhere. Once I have all of my files, I scan in the physical copies and shred them so I have everything in one digital folder. Then it’s time to get my taxes done!

5. Choose your filing method

As long as you’ve been able to do your taxes on the computer, there has been an ongoing debate of whether you should do your taxes yourself with a program like TurboTax, H&R Block, or TaxACT or hire an accountant to do your taxes for you. After a decade with an accountant, I started doing my own taxes a few years ago. I found my accountant made some egregious mistakes that could have cost me hundreds of dollars, and I realized I know my finances and accounting better than anyone else. With that knowledge, I’m best suited to do my own taxes.

I have used each of the three tax software packages mentioned above, sometimes in desktop form and sometimes online, and my current favorite filing method is TurboTax online, which I plan to use again this year for both my business and personal taxes. If you are not comfortable doing your taxes online, there is nothing wrong with paying a professional. Just know you may pay a lot more and should review your taxes thoroughly before signing and sending them in.

Taxes don’t have to be terrible

You may dread tax season, but taxes don’t have to be a horrible part of your finances and your business. You have to do them every year, so find systems and methods to make it easier, faster, and cheaper. I love the look of a finished tax filing. Every number is in its right box with matching formats. I can review my entire year’s income and expenses in one place. It feels great when my taxes are done. Now it’s time to great ready to do them!

(By Eric Rosenberg)



Original Source