Here we are, more than half way through the year (where does the time go?!) and the time has come for a September tax checkup. If you’re like most people, you’ve put last year’s tax filing behind you by now, and the last thing you want to do is bring up bad memories by looking at the current year’s tax situation! The thing is, if you spent some time reviewing your financial and tax situation now, you could make filing your taxes as the end of this year so much easier and less stressful
Reduce Stress Through Organization
The primary reason people have such a stressful time when filing their tax return is because they don’t have their paperwork organized. If you get organized now (and maintain it through tax season!) you’ll have a much easier time filling out your return. Everything you need will be right where you expect it to be, and filing your tax return becomes a matter of just filling in the blanks on the forms! It is a good idea to familiarize yourself with standard tax record retention basics on an annual basis to ensure you are keeping the proper records.
If you freelance or have other self-employment income, you need to keep all of your receipts for expenses so you can deduct them at tax time. If you pay for daycare, keep receipts of the expenses. If you plan to deduct your medical expenses, keep organized statements and payment records for all of your qualified medical expenses. Having an accordion file labeled with each category of paperwork will keep everything at your fingertips. As you receive new documents in the mail or receipts from purchases, simply slide them into the appropriate file and you’ll be ready to go at tax time.
Changes to Your Professional Situation
Did you spend a lot of time looking for work after being laid off? Many job search expenses can be deducted on your tax return. If you move because of a new job, your moving expenses are also tax deductible.
If you’ve gotten a new job, don’t forget to use the IRS Withholding calculator to figure out how much to withhold from your check. Taking too much out means you’ll get a huge tax refund when you file your tax return (welcomed of course, but you can make better use of that money during the year instead of giving the government the money on an interest-free basis!). If you don’t have enough taken from your check, you’ll be paying at tax time.
If you started doing freelance work on the side to earn extra money, don’t forget that income earned over $600 a year is taxable.
Changes to Your Personal Situation
First, did anything new happen in your life since the new year? Have you tied the knot? If so, you’ll need to consider your tax withholdings and make adjustments.
Did you move into a newly purchased home? If you bought a home that qualifies for the first-time homebuyer’s tax credit, you’ll maybe enjoy a little extra money at tax time. At the very least, you’ll be able to itemize your deductions if you haven’t been able to in the past. Things like property taxes and mortgage interest on your new home will be tax deductible. Itemizing your tax return also means you can deduct a variety of miscellaneous expenses like your charitable donations, investment interest and taxes.
Are you expecting a baby sometime this year? Babies help lower your tax bill for most families, as they offer another personal exemption on the tax return. If you qualify, you may also claim the dependent care credit and/or child tax credits.
September through the year is the perfect time to look at how much you’re contributing to your retirement accounts. For tax deferred retirement accounts, you really should try to contribute the maximum allowed amounts each year because it will reduce your taxable income in addition to growing your nest egg. Also, you may want to consider rolling over a 401k to a Roth IRA this year, because if you were planning to roll one over, the taxes will be less this year than next.