How can I easily get ready for next year's tax season?

By Denise Appleby AAA
A:

You may one of the lucky ones to come out on top this tax season, but as you will likely agree, it does not mean that you should rest on your laurels. Instead, use the experience gained during this tax season as a guide for the things that you can do better for next tax season.
The following are some tips that can help to ensure you have a smooth 2007 tax season:

  • Design a filing system for all your receipts and tax documents. The shoebox system is not the most effective, but it can be a good back up for information you enter into a database. Your shoebox system can be as simple as maintaining separate envelopes for different types of receipts, e.g. medical, educational, travel, charitable donations and job-hunting expenses. Before you file those receipts away, be sure to enter the amount into your database. If you are not ready to invest in a ready-made accounting software, and you are not spreadsheet savvy, ask your tax preparer to design a spreadsheet file for you to help keep you organized. Designing such a program takes no more than 10 minutes for someone who is familiar with the process.
  • If you received a large tax-refund, consider decreasing your tax withholding percentage, which would increase the amount you receive on your paycheck. The increased take-home pay can be routed to your savings account, including retirement accounts, as an automatic deposit. Many employer and plan administrator websites host calculators that can help you determine how an increase in withholding tax would affect your take-home pay.
  • If you owed income taxes, consider whether you need to pay estimated taxes during the year so as to avoid any penalties that may be owed for underpayment of taxes. See IRS Publication 505 at www.irs.gov for assistance with determining whether you need to pay higher estimated taxes.
  • If you missed the deadline for liquidating stocks for which you wanted to write off losses for last year, make a note to yourself to sell those stocks before year-end. (To read more, see How do I avoid paying excess taxes on securities I have sold?)

Getting an early start will help you to avoid year-end and tax-filing period rush, and it will help you keep on track with your financial goals throughout the year.

If you feel you will be unable to file your tax return by the deadline, see Get A Six-Month Tax Extension.

Question answered by Denise Appleby, CISP, CRC, CRPS, CRSP, APA

RELATED FAQS

  1. What is the best method of calculating depreciation for tax reporting purposes?

    Learn the best method for calculating depreciation for tax reporting purposes according to generally accepted accounting ...
  2. Can you write variable costs off your taxes?

    Learn if you can deduct variable or fixed costs from your business taxes and learn more about business deductions, cost of ...
  3. What are the best ways to lower my taxable income?

    Paying taxes is an unavoidable obligation each year, but individuals and business owners can take advantage of various strategies ...
  4. What is the difference between gross income and earned income?

    Being able to distinguish between earned income and gross income is an important tool in preparing for and filing your individual ...
RELATED TERMS
  1. Deferred Tax Asset

    A deferred tax asset is an asset on a company's balance sheet ...
  2. Buffett Rule

    A tax rule proposed in 2011, by President Barack Obama, stating ...
  3. Benefits Received Rule

    1. A theory of income tax fairness that says people should pay ...
  4. Generation-Skipping Transfer Tax - GSTT

    A tax incurred when there is a transfer of property by gift or ...
  5. Tax Code

    A federal government document, numbering tens of thousands of ...
  6. A-B Trust

    A trust created by a married couple with the objective of minimizing ...

You May Also Like

Related Articles
  1. Taxes

    How To Deduct All Of Your Charitable ...

  2. Credit & Loans

    7 Times It Costs More To Pay With A ...

  3. Investing News

    Munis, Midterms And What To Watch

  4. Taxes

    Federal Tax Brackets

  5. Taxes

    After-Tax Balance Rules For Retirement ...

Trading Center