Get a Jump on Next Year’s Taxes Now
April 30, 2008 · Print This Article
If you’re like me, tax season is exhausting and stressful, especially if you owe Uncle Sam. The deadline is past, but you may still wonder if you paid too much or if you missed any deductions that could have saved you money. Well the best way to avoid that overtaxed feeling (pun intended) is to get a jump on next year’s taxes now.
Here are a few smart tax moves you can do now to make next year’s tax season less painful:
Get organized: If your tax filing system consists of shoeboxes and shopping bags, now is a good time to move your finances to your computer. You still need to save key receipts and documents, but entering spending, savings and investment information into a program like Quicken or Microsoft Money (whichever is easier for you to use), will not only give you a clearer idea of your finances, but it will make your tax filing process much easier for your tax professional or if you do it yourself.
How long to keep documents: you should keep your tax returns and all
supporting documents for a minimum of three years, up to seven years.
A good idea is to setup a new tax folder for each new year and file all
receipts and tax documents in this folder as soon as you receive them.
When your taxes are complete, put everything in a manila envelope and
file away with your previous years’ tax returns.
Adjust your tax withholding: If you got a large tax refund on your tax
return, consider increasing your number of exemptions so that less
money is taken out of your paycheck and more goes into your pocket.
Use Form W-4 to adjust your withholding.
Make estimated tax payments: on the flip side, if you owed Uncle Sam a
pretty big chunk this year, then you may need to make estimated tax
payments. Estimated tax payments are made quarterly using Form
1040-ES. If you owe more than $1,000 on your tax return, you
definitely should make estimated tax payments to avoid owing penalties.
Business owners: there are many things you can do to make next tax
season easier if you have a small or home based business, but here are
a couple to get started. First, if you earned a substantial profit,
review your business structure… it may be time to incorporate or to
start a retirement plan. You should also consider hiring your children
in your business to save taxes. And most importantly, make sure you
understand what expenses are deductible so you won’t miss any at tax
time.
Keep an eye on new tax laws. A new tax credit or deduction may create
tax planning opportunities. For example, in 2007 we had several energy
credits, so that was a perfect opportunity to make improvements to your
home. In 2008, the long term capital gain rate is 0% for taxpayers in
the two lowest tax brackets. This is a great opportunity for taxpayers
to rebalance their portfolio or reduce large stock positions without
paying a ton of taxes on the gain.
Get help: whether you need a bookkeeper for your small business or you
need a tax preparer to prepare your tax return next year, get help
BEFORE tax season gets here. If you wait until tax season actually
starts, you may have trouble finding an accountant who can (or is
willing to) take you on as a client.
Bottom line: the more prepared you are for tax season the better you’ll
fare. You are more likely to get all the tax credits and deductions
you are entitled to – and thus to pay only your fair share of taxes -
the more organized and prepared you are.
Subscribe to EbizTaxTips.com
Attn: Online Business Owners! Do you want to learn how to minimize your online business taxes?
My free report '5 Tax Saving Tips for Ebiz Owners' includes tips to help you get all the deductions and credits you're entitled to, so you don't overpay Uncle Sam!
Excellent information Kristine. I am a tax preparer, and during tax season I give my clients similar advice on preparing for next year’s taxes, depending on their situation. It is never to early to getting your tax records in order.