Did you file your taxes well before the deadline, rush them off without a moment to spare, have to file for an extension, or did you bury your head in the proverbial sand hoping it would all just go away? Benjamin Franklin reminded us of the certainty of death and taxes. If doing your taxes was stressful, now is the time to start preparing for this time next year.
According to the Internal Revenue Service (IRS), there are four steps you can take now to make filing your federal income tax return a little easier. The first step is to create your account information at IRS.gov/account. This online account allows you to securely access the latest information about your federal tax account and view information from your most recently-filed return.
Through this account you can view your tax records, change your address, apply for payment plans and make payments. You can also electronically-sign certain forms and manage your communication preferences with the IRS.
The second important step is to set-up a system to organize your tax records. The IRS doesn’t require a specific record-keeping system as long as it is accurate. File-folders are a time-tested method of staying organized. The files you need may include Income, Business Expenses, Medical, Mortgage, Student Loans, Investments, Retirement, Child Care, Home and Property, and Charitable Donations.
Depending on your situation, you may be able to get by with one folder labeled 2023 Taxes. If the trusty file-folder method seems too old-school, the IRS accepts scanned and digital receipts as long as they are clear and complete. Use a receipt tracking app to organize and save your images.
You can’t file your taxes until you have all of your tax records, which are required to be distributed each year by January 31. Your tax needs may include W-2 forms from employers, 1099 forms from banks, agencies and other payers, and form 1095-A from the Health Insurance Marketplace. Remember, most income is taxable including that from unemployment, interest, the gig economy, and digital assets. As a general rule of thumb, the IRS says you should keep your individual federal tax records for three years.
Step three is to make sure you’re withholding the right amount. If you owed a lot or received a large refund when you filed this year, consider adjusting your withholding. Changing your withholding can help you avoid a big tax bill or let you keep more money each payday. Remember that life changes such as getting married or divorced, having a child, or taking on a second job may also mean changing your withholding tax.
There is a convenient tool at IRS.gov called Tax Withholding Estimator that can help you determine the right amount of tax to have withheld from your paycheck. Any change will require you to submit a new Form W-4 to your employer. If you receive a substantial amount of non-wage income from self-employment, investments, and some pensions and annuities, you may want to consider setting up quarterly estimated tax payments.
Finally, the fourth suggested step is to set-up direct deposit. The fastest way for you to get your tax refund is to file electronically and opt for direct deposit. You will need your bank account and routing numbers. For those without bank accounts, the IRS offers some possible alternatives. Direct deposit avoids the possibility that a refund check could be lost, stolen or returned to the IRS as undeliverable.
Paying taxes is a reality of life. This year’s deadline is behind us, but don’t wait to take the necessary steps to get prepared for next year. Tax season will come around again as sure as flowers bloom in spring, but we can simplify the process to make it a little less taxing.