The short answer is yes, it is time to start thinking about getting ready to file your 2018 tax return.
I know. You just were knee-deep into getting things done for 2017.
Whether you are a last minute tax filer or you like to plan ahead, here are some tips to help you stay organized and potentially keep more of your hard-earned money.
First, let’s get organized for next year starting today. Here are three ways to make next year’s tax prep easier:
- Start tracking all of your tax related expenses now. Don’t be that person that is scrambling with the deadline looming trying to find receipts and wondering what they are for. Set up a system so that as you spend your money you make the “tax” decisions at the point of sale.
- What do I mean? Start using something like Quicken or Mint to track and categorize your expenses. Let’s say that you give money to your church each week by writing a check. Wouldn’t it be nice at the end of the year if you could simply prepare a report that added up all of your charitable gifts to see if you could use that to reduce your tax bill instead of piecing it together at the last minute? Good software can help you with this by allowing you to “code” that church gift as a “contribution” at the time you write the check. In the end you add up all of the “contribution” entries and you have your total for the year.
- Bonus tip: you can do the same with cash contributions, both small and large, that most people end up not using when tallying their charitable contributions.
- Keep all of your tax related documents in one place. I know that you may already do this but you need to do it better. This is pretty easy to do from about January to March because that is when your mailbox is busting out with tax documents.
- Taxes are on your mind so you throw all of the various envelopes in that special place. It could be a drawer, a file folder, or that special “tax stuff” box. It does not matter where. It only matters that you do it. But, you have to do it all 12 months of the year. You may get things like IRA year end value statements, receipts from charitable gifts, and more all throughout the year. I suggest putting them in that special tax place. You also need to remember to either print those documents that arrive via email or store them in a special virtual folder. I choose to print since these days most of my other tax documents are still sent old school USPS.
- If you give away “stuff” to a charity you must document at the time of your gift. Have you ever given away something and then forgot what you gave when it came time to file your taxes? I know I have. Your solution is easy but you have to do this at the time of your gift. Before you call anyone to pick up your clothes and books, make a list of everything you are donating. You could also take pictures which could help if you are ever audited.
- Bonus tip: Use software like Intuit ItsDeductible to help detail and price your items. If you do this at the time of your gift you will thank yourself when a tax deadline is looming.
Second, after creating a system to stay organized, consider adjusting your withholding to “zero in on zero” for 2018. Why and what does this mean?
A tax refund is not necessarily a good thing. After all, a tax refund just means that you overpaid. You “lent” the money to the government and received nothing in return. No interest. No dividend. No thank you note.
The name of the game is to try to get as close to zero as possible. This is where you pay in exactly what you owe. No more. No less. While that is darn near impossible, the point is to not give your money away throughout the year. Reducing your refund could mean larger paychecks each month.
Want more info on this? Click HERE for my tax refund cheat sheet.
Third, consider doing a tax projection for 2018.
You may have already heard that we have a new tax law (yes, that is sarcasm).
We are in a world of the unknown. Professional tax preparers are not even sure how the new law will change your return. Odds are that your overall tax bill will go down but that is not guaranteed. It may be hard, but you should sit down now and prepare a mock 2018 tax return. If you have a tax preparer, get them to do it…pay them to do it. I think it might be worthwhile.
TurboTax has a decent tool but it is only as good as the information that is released by the government. I would not trust a projection tool like this 100% but if you find that a large refund is expected, you can go and adjust your withholding as mentioned above. A projection may save you some work too. If you figure out that itemizing is no longer beneficial for you, you really don’t need to keep up with things like charitable contributions.
The bottom line is that a little preparation and organization throughout the year can save pain and hassle next April. The small but consistent work that you do now can mean hours of time saved down the road!