With 2018 just around the corner, tax season will be here before you know it. While April 15 is a dreadful day for many Americans, it doesn't have to be that way if you think ahead and prepare your taxes now.
Here are eight ways to prepare your taxes now for next year.
Do you plan on filing taxes on your own or paying a professional to do it? Do you owe taxes for this year or past years? Have you gotten married or had a child? These are all questions that should be asked to help you prepare your taxes now.
If you are an independent contractor or self-employed, there are a few more questions you should ask yourself as far as your business is concerned as well. Do you have any employees? Did you put mileage on your car because of your business? These are just a few of the questions to ask to make sure you are getting ahead of the game.
Know How You Will File
Are you single, married, or filing jointly? Do you have any dependents? Knowing how you will file can make filing a lot easier when the time comes. You will know how much to withhold from your paychecks based on your allowances.
You'll also roughly know how many deductions you qualify for based on members in your household.
Note Any Extra Income
If you side hustle or make money outside of gifts for your birthday, you will have to report it to the IRS.
Even if you get paid cash, it's important to keep records of all received income. To make it easier to track, try using a payment system like PayPal, or remember to write out invoices and payments.
Review Your Tax Breaks
There are many ways to save on taxes. If you have kids, are self-employed, own a home, or even drive an electric car, you can qualify for a tax credit or deduction. It's important to take some time to review these tax breaks and figure out what you qualify for, especially if you are filing taxes on your own or using a system.
If you are using a professional, they may be able to help you find a few more tax breaks, but knowing a few on your own can make the process easier.
If you are filing your taxes on your own, it may be best to write or type out the tax breaks that you know you qualify for and keep them with your tax information. With so many tax breaks, it can be hard to remember all of the ones you qualify for.
Start Tracking Expenses to Prepare Your Taxes
If you haven't been keeping track of your expenses, now is the perfect time to start. Print off your bank statements and mark any expenses that you had due to a business or side hustles. Also, if you own a home or kids, keep track of those expenses as well.
If you have been tracking your expenses, keep at it. You could always use an app or tool online to make it easier to track expenses to help you prepare your taxes now, but it's not necessary.
Along with tracking your expenses, it's also important to keep all of your receipts. This is especially important if you own your own business. Again, even if you pay with cash, have some sort of receipt. If you were to ever get audited, or if you are trying to lower your taxes, your receipts will come in handy.
I recommend keeping your receipts in a clear zipper pouch in your tax filing system. To take things a step further, you can also clip receipts by month or type, depending on what works best for you when you file your taxes. If you got a receipt online, just print it out and add it to the pouch as well.
Keep Records Organized In One Folder
All of your receipts, tax information, expense sheets, and check stubs/W2's should be kept in one separate folder in your filing system. This will make it easy to prepare your taxes now, and easy to pull out when it comes time to file.
Make sure to keep this folder away from public view, preferably in a fire proof safe.
Set Money Aside
If you think you may owe taxes, start setting money aside. It's never too early to save and prepare your taxes now. In fact, the earlier you start saving, the less chance you have of going into debt or having sticker shock when you see how much you may owe.
Even if you don't plan on owing money, I still suggest saving some cash for tax season. Filing taxes typically isn't free, even if you do it yourself. Having some extra cash set aside can keep you from dipping into your regular funds.
It's not hard to prepare for your taxes now, but it may take some time. Starting early can help keep you from being stressed, and can also save time and money.