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Tax season officially end[ed Monday] at midnight. Care to join us for a celebratory cocktail? OK, maybe you’re still planning to run to the post office tonight (if so, check out our last-minute tips). But if your return is already filed, grab that martini and treat yourself to a massage. No matter how many times we do it, tax season is always, well, taxing. And immediately after filing, we do everything we can to forget about taxes…at least until next April.
But we started to wonder–if preparation and planning are some of the best tools in conquering your personal finances, can this approach help with taxes, so they’re not a new scramble every year?
The answer is yes. We asked Cindy Goldstein, a certified public accountant and tax attorney in New York, for ways to make next year’s tax time less stressful and less expensive with things you can start doing now. Well, okay…tomorrow.
You Couldn’t Find Your Paperwork
Either you wasted time rifling through papers, or you dumped them on your accountant and she charged you accordingly. “The more organized a client is, the better fee I can offer them,” says Goldstein, “because then I can just do my job instead of sifting through their receipts.”
This is what you need to save.
- Government confirmation of your return and your refund
- Records of charitable donations, including receipts
- Large medical or dental bills
- Records of business or job hunting costs
- Forms from your job showing income you’ve made
- Purchases, sales, and improvements to real estate property
- All actions in your investment and IRA accounts (note that most online brokerages will keep these records for you.)
- Next April can be a breeze with these tips you can get started on now–after your celebratory cocktail, of course.
The Fix: Make a neat organizational system now, so next year you can sail right through tax preparation. If you organize your papers best with technology, create a folder on your computer, and scan in your tax documents with one of the many useful tax apps out there. If you’re a paper person, buy yourself a folder—like this flowery retro one to keep it fun. Keeping good track of your papers is especially important if you itemize your deductions (find out if itemizing is right for you).
You Got A Huge Refund
“If you’re getting back more than approximately $1,000 or $2,000 dollars,” Goldstein says, “you might have a problem.” When the government takes taxes from your paycheck, it’s actually taking estimated taxes, based on what you think you’ll owe in April. You make that estimation through the withholding you choose on your W-4 form at work. Your tax refund is the difference between what you estimated and what you actually owed.
A refund may seem like a windfall, but you really gave an interest-free loan to the government. You could have been earning interest on that money if it were in the bank all year.
The Fix: First, figure out what to do with all that refund money. Then, ask your HR department for a W-4 and fill it out with a lower withholding. (We can show you how to fill out your W-4, too.) If you’re worried about spending it, and have been using the U.S. government as a pseudo-savings account, set up an automatic transfer for the extra money from your checking account to a savings account so you never notice the difference.
You Had A Big Tax Bill On Your Investments
You worked hard, made some money, and even invested in the stock market. But now the IRS has slammed you with a big, fat bill. Two things to ponder about your tax bill:
1. If you buy a security that pays you dividends (or if you earn interest from, say, a CD), that money can be taxed as income. In contrast, if one of your investments increases in value but you don’t actually sell it (and it doesn’t pay dividends), its worth goes up but you won’t be taxed.
2. The cutoff between short- and long-term capital gains is one year. Why that matters: Say you buy shares of a mutual fund on December 30th. A year later, to rebalance your portfolio, you decide to sell off some of those shares (which made money during the year). If you sell that mutual fund on December 28th, you’ll be taxed significantly more than if you waited until December 31st because you’d have held the investments for less than a year.
The Fix: Don’t make investment decisions based primarily on taxes, but be aware of how your activities will impact your tax bill. So, maybe wait until a year has passed to rebalance your portfolio, and know what to expect when your investments pay you dividends.
You Tried To Go It Alone — But Shouldn’t Have
You’re on top of your financial game, but you’ve also got a lot on your plate. If you realized too late that you needed help, next year, don’t let the IRS take away your taxes and your sanity.
The Fix: First, figure out whether you need an accountant, because not everyone does (use our handy guide to find out). If you do, don’t wait until the last minute next year or you might have trouble finding one. “There are a lot of accountants who are just too busy,” Goldstein says, “and they might not be able to take you at the last minute.”
Going to an accountant early in the season can get you a better rate because she isn’t swamped yet. Your friends and family have taxes fresh on their minds, so now is the best time to ask for recommendations.
Ok, now tax season is over. Go on and get that massage.