Last Updated: March 1, 2012
Don’t look now, but tax season is upon us, with the April 17 deadline for filing 2011 federal tax returns just weeks away.
While tax preparation clearly isn’t one of America’s favorite pastimes, here are 11 simple, practical steps taxpayers can take today to make the preparation process smoother and less stressful:
- Establish a single collection point for all your tax materials. Something as simple as a file folder marked “2011 Taxes” will suffice. “It’s basic,” says FPA member DeDe Jones, CPA, CFP®, “but it’s a huge step organizationally.”
- Take inventory of the tax forms you receive — 1099s, W-2s, etc. — to confirm you have all the ones that are due, and that the information they contain is correct. Verify that key details such as your Social Security number, tax withholding amounts and income figures are accurate. If you discover a form is missing or has an error, contact the relevant organization (employer, financial institution, etc.) immediately to request a new or replacement document.
- Gather documentation. Claiming a tax break for a charitable donation or intending to write-off business expenses? Then you’ll need supporting materials for your tax return: receipts for business expenses, charitable donations, etc.
- Decide who will prepare your tax returns. Will you do it yourself or rely on a professional, such as an accountant? More people are choosing the latter because tax preparation is getting more complicated, according to Jones. “Getting professional assistance can really pay off just by finding things that you easily could miss.”
- Meet with a tax adviser, whether it’s a CPA or a financial planner with tax expertise. Even if you don’t hire the adviser to prepare your returns, the money you spend to have an expert review your tax situation, answer questions and provide ideas may prove to be a worthwhile investment. “There’s a lot of help out there to make the process a lot less painful,” Jones says.
- Have a deduction conversation with your spouse and your tax adviser, so everyone’s on the same page regarding whether to use the standard deduction or to itemize deductions.
- If you worked two jobs or changed jobs during 2011, verify your Social Security taxation amount. Some people in those situations are mistakenly double-taxed, notes Jones.
- Confirm your filing status (again in consultation with a tax adviser) in light of any life changes, such as marriage, divorce, having a child or starting a business.
- Take stock of any tax liabilities or tax credits from past tax years that you need to carry over or carry forward, such as real estate passive losses, capital gains or losses, and/or charitable contributions.
- Divorced? Time to have a deduction conversation with your “ex” to determine which one of you will take the tax deduction for dependent children. If one takes it, the other cannot.
- Maximize contributions to your Individual Retirement Account (IRA). Contributions to a “deductible IRA” not only help grow a retirement nest egg, they may lower a person’s taxable gross income, potentially reducing their income tax and social security tax liability. Limits on tax-deductible contributions vary depending on factors such as income levels and being self-employed, so consult a tax adviser, ask your Human Resources department at work, or go online to learn about the limits that apply to you. Also consider making contributions to a Roth IRA, again in consultation with a tax expert. And remember, you can still make IRA contributions for 2011 right up to the April 18, 2012, filing deadline.