Do you hate feeling rushed? I certainly do. Well… if you procrastinate during income tax season, you’re not only going to have to finish things up at the last minute. You also run the risk of making mistakes. And if that happens you’ll have to deal with stiff tax penalties as well. And if you need more convincing to get your tax return game on, consider IRS audit red flags. Filing your tax return on time is one way to reduce that risk. Let’s get income tax crack-a-lackin’.
Don’t think about it anymore. Open up your calendar and schedule the earliest possible time to devote to getting your documents in order. During that time, don’t let anything interrupt you. And while your at it, make sure you take advantage of every tax saving move before year end. Put a note in your calendar so you consider these maneuvers in October, November or at the very latest December.
Realize that once you start putting your papers in order you may discover that you are missing some key data. That’s why you need to start preparing for tax season right now. Really focus on this.
If you paid someone $600 or more during the year, you must issue them a 1099*. This goes for independent contractors such as lawyers, accountants, bookkeepers, computer consultants etc. The only time you don’t have to send out a 1099 is if:
- The recipient is a corporation.
- You included the payment in a W-2.
- You paid for a tangible product.
- The total payments are for less than $600.
The IRS says that you must send out your 1099’s by February 1st so get on this – pronto.
Let’s talk about the 1099’s you need to include in your own tax return. If you’ve received $600 from someone and aren’t exempt, you must include the 1099 form with your tax return.
Have you received all your 1099s? Are you missing any? If you’ve been using software to track your income and expenses this will be easy to know. If you don’t use software, look at last year’s return. It might provide clues on 1099’s that you are missing this year.
If you are missing one or more 1099, contact the payor immediately. Make sure they have your most current contact information. If possible, download the document rather than wait for it to come in the mail.
You need statements from your banks, brokerages, mortgage companies, etc. Do you have them all? If not, get on the horn and take care of this.
Did you donate any tangible goods to charities? If so, gather the receipts that reflect this too.
Note – while we’re on the topic of documentation……you should definitely keep your tax records far longer than even the IRS tells you. Besides helping you prove you filled correctly, your returns have many more uses.
If you don’t use a tax preparer, you hopefully use a software package and that program most likely will have its own planner included. Start working down the list now.
If you use a CPA to complete your tax return, ask her to send you a tax planner ASAP. This document will spell out exactly what information your CPA needs.
My suggestion is to make every effort to fill this form out so completely that you don’t have to actually sit down with your CPA this year. Why?
Because your CPA’s time is at a premium during tax season. And if you eat some of that precious time up, you’re going to pay for it.
You will absolutely save money if you complete your tax planner so well that your CPA doesn’t need to sit down with you. If you have a question or two, send your CPA an email. But do whatever you can to avoid the need for a face to face meeting if possible. Your CPA will appreciate it and you’ll love the money you save.
I learned the hard way that the best way to prepare for tax season is to use spending tracking software and keep it up to date throughout the year.
For years I used to fill up shoe boxes with receipts and statements. Then, during tax season it took me weeks just to get ready to do my tax returns. No more.
Now I use QuickBooks for my business and YNAB for my personal use. They each have their pros and cons. Regardless of which program you use, it will be much easier for you come tax time if you track your data on an ongoing basis rather than needing to reconstruct your financial life during tax season.
How do you prepare for tax season? What works best? What needs to be improved?