With less than a week until February ends, I’m sure there’s only one thing on your mind: Preparing your taxes! Alright, I suppose that if you aren’t big on reading and/or writing about money and money management, you probably have given much thought to preparing your taxes. It’s traditionally more of a late-March into early-April event for most people (with far too many people making it a ‘day before they are due’ event).
But trust me, you’ll be much better off when it comes to your taxes if you make a point of calculating your tax obligation now (if you haven’t done so already, of course) rather than putting it off any longer. I spent this weekend preparing my family’s taxes, and though it was not the most enjoyable way to spend a weekend, I’m glad that I’ve gotten it completed early, rather than later, when problems or other complications might have arisen. (It doesn’t hurt that I managed to get a pretty healthy refund, which could be possible for you as well.)
But before you get started, it’s important that you are read to go; tax preparation isn’t an easy matter, so be sure to keep these suggestions in mind as you work to get your taxes ready:
1. Make Sure You Have All The Necessary Paperwork: Before you start filling out your tax forms, you’ll need to make sure that you have all the required data available. Most of the places that involve your finances, such as your job(s), your bank(s), or your investment firm(s) should have sent you the required paperwork or given you access to those papers online by the end of January . (If they haven’t, it’s important that you contact them as soon as possible, to make sure you get your paperwork in time.)
Now, the question of what paperwork you need is a tricky one. Which forms you will need depend on how you earned your money, if you’re planning to itemize your deductions, and what investments you’ve made, among other issues. It can include things such as W-2 forms from your workplace(s), 1098 forms if you are paying back (deductible) mortgage interest or student loan, records of IRA contributions, and a number of 1099 forms for most other income sources. This pile of paperwork could be either a hefty stack or a few pages, depending on what your financial situation looks like, which brings us to:
2. Determine The Complexity of Your Financial Situation: Now that you have your paperwork, you can now figure out what tax forms you need to fill out and how to proceed. The more paperwork and the harder your tax filing process, the more likely that you should seek some help, whether from people or software. If you meet the requirements of the 1040EZ form, you can probably fill out said simple form and not worry too much. (It’s intended to be EZ (easy), after all.) For more complex situations, it’s probably worth considering an accountant, or if you prefer to prepare taxes on your own:
3. Get the Appropriate Software (If Needed): If you’re filing your taxes on your own (which I’m guessing is the case if you’re reading this), you should probably software to help you out. While you can fill out tax forms, even completely tax forms, correctly without any assistance, it’ll be helpful to have a knowledgeable program around to check your work. I’m an H&R Block man, myself, but there are other options available, including more than a few free online programs (for federal taxes, at least; if you live in a state with its own income tax, you’ll likely pay to get help with that).
4. Check, Double-Check, and Triple-Check: Whether you do it through a tax software program, an accountant, or entirely by yourself, you should soon complete the necessary tax forms (at least if you have all the paperwork handy). When you reach that point, it’s important to keep in mind the importance of double- and triple-checking your work. These forms are important financial and legal paperwork you are filling out, so it’s good to make sure it is accurate, should you be one of the unfortunate ones who gets an audit. (Plus, it doesn’t hurt to get a larger refund or cut down the amount you owe, if possible.)
5. Proceed When You Know Your Amount Owed or Refund: Once you’ve completed and double-checked your paperwork, you will have a final figure for how much you owe, or the amount owed to you. Depending on the situation, there are two major paths to take:
-You’re Getting a Refund, So File Quickly: If you’re getting a refund, Huzzah! While there’s much to be said about decreasing your withholding so you have more money throughout the year (and avoid giving Uncle Sam an interest-free loan), it’s not a bad thing to get a nice bulk sum of money come tax time. If you are due a refund, you should file your tax forms as soon as possible (electronically, if that’s an option). The earlier you get your paperwork to the IRS, the sooner the process of getting your refund sent to you can begin and the more likely you are to avoid the inevitable rush of people filing right before April 15th. If you have been giving Uncle Sam a loan, why not ask him to return it as soon as possible?
-You Owe Money, So Hold Back on Filing: On the other hand, if you owe money (boo!), you don’t need to file right away. Instead, keep your tax forms on hand and wait until closer to the 15th to file. You’ll have a chance to save up the money you need to pay without needing to scramble to get it available. While you hopefully won’t need to pay too much, the longer you have to build up your tax payment funds, the better. Just make sure that your tax forms and the taxes you owe are sent off by April 15th; the last thing you need is trouble with late taxes when you’ve prepared them more than a month ahead of time.
6. Prepare For Next Year: With your 2013 taxes ready for April 2014, it’s time to relax…and start thinking about making your taxes more pleasant in the future. I provided some suggestions on preparing for future taxes the year before, but here’s the short version: put more money into retirement accounts, tweak your withholding so you have more money throughout the year, and if you do, make sure you have money available for taxes come April.