Planning for a Stress-Free Tax Season
The tax season is a stressful and overwhelming time for many individuals and businesses. However, with a solid plan and some basic knowledge, you can minimize the stress and get your taxes done efficiently. GOBankingRates’ editorial team is committed to providing unbiased reviews and information to help you make informed decisions.
Figure Out Your Withholding and Estimated Taxes
To avoid a potential tax bill next year, it’s essential to figure out your tax withholding and estimated taxes now. By doing so, you can avoid the hassle and penalties that come with underpayment. Hubert Johnson, a tax attorney at Guardian Tax Law, advises, “Get your withholding and Estimated Taxes set in place to make sure you will not owe for 2025.”
- Check your current tax withholding: Review your previous year’s tax return to see how much was withheld from your paycheck.
- Adjust your withholding: If you’ve experienced changes in your income or family status, adjust your withholding accordingly.
- Make estimated tax payments: If you expect to owe taxes, make quarterly estimated tax payments to avoid penalties.
Plan To Lower Your Tax Bill
Owing taxes can be a significant burden. To minimize the stress and cost, start planning now. Kari Brummond, an accountant and IRS enrolled agent at TaxCure LLC, suggests, “If you’re employed, give your employer a new W4 — fill it out completely, paying special attention to the section for additional jobs and/or your spouse’s income.” For self-employed individuals, it’s essential to discuss tax strategies with your accountant to reduce your tax bill.
Simple Changes to Reduce Your Tax Bill
- Change your withholding: Adjust your tax withholding to avoid overpayment.
- Contribute to retirement accounts: Contribute to retirement accounts, such as IRAs or 401(k), to reduce your taxable income.
- Take advantage of tax breaks: Look for tax deductions and credits that apply to your situation, such as the Earned Income Tax Credit or Child Tax Credit.
Get Your Documents Together Early
While you may not have all the tax documents ready, start organizing your financial records in advance. Paul Miller, CPA, founder of Miller & Company, recommends, “Start a digital folder now for receipts, income docs, and deductible expenses. Your future self will thank you.”
Set Up Bookkeeping
As a self-employed individual or business owner, setting up bookkeeping is crucial to ensure accuracy and compliance. Brummond advises, “If you’re not doing bookkeeping for your business, set up bookkeeping software so that you’re organized for next year — if you’re filing based on a stack of bank statements or receipts, you’re likely paying more for tax prep, and you’re probably missing tax deductions.”
| Bookkeeping Software | Features |
|---|---|
| QuickBooks | Invoicing, expense tracking, and financial reporting |
| Xero | Cloud-based accounting, invoicing, and expense tracking |
Maximize Retirement Account Contributions
Maxing out your retirement accounts is a great way to reduce your taxable income and save for the future. Brummond suggests, “For instance, if you’re eligible to invest in an IRA, see if you can set aside money weekly to put in — contributing about $138 per week will help you reach the $7,000 maximum for the year.”
Other Tax-Related Benefits
- Health Savings Accounts (HSAs): If you have a high-deductible health plan, consider opening an HSA to save for medical expenses.
- 529 College Savings Plans: If you’re planning to send your kids to college, consider opening a 529 plan to save for tuition costs.
Look for Tax Breaks
There are many tax breaks available that you may not be aware of. This includes tax deductions and credits for major life events, such as marriage, divorce, birth of a child, or income or job changes. Miller suggests, “Now’s a good time to look over these tax breaks and see whether you’re eligible.”
Common Tax Breaks
- Earned Income Tax Credit (EITC): A refundable credit for low-income working individuals and families.
- Child Tax Credit: A non-refundable credit for families with children under 17.
- Education Credits: Tax credits for education expenses, such as the American Opportunity Tax Credit or the Lifetime Learning Credit.
Verify Your Filing Status
Verify your filing status to ensure you’re eligible for the standard deduction. Miller advises, “You could get a larger standard deduction if you file as head of household or married filing jointly (but you’ll of course need to qualify).” Review the eligibility requirements and ensure you meet the necessary criteria.
Conclusion
In conclusion, planning for your taxes is crucial to minimize stress and get your taxes done efficiently. By following the steps outlined above, you can get a head start on the tax season and ensure a smooth tax-filing experience. Remember to review your tax withholding, adjust your withholding, make estimated tax payments, and plan to lower your tax bill. Additionally, organize your documents, set up bookkeeping, maximize retirement account contributions, look for tax breaks, and verify your filing status. With a solid plan and some basic knowledge, you can navigate the tax season with confidence and achieve your financial goals.