With 2018 coming to a close, now is a great time to start preparing for tax season. Since there were multiple changes to the tax rules, you could be one of the lucky individuals whose taxes are more complicated this year. Early preparation now can make filing taxes a little less stressful. Here are five things you should do to get ready for tax season 2019.
1. Gather Basic Information
Although tax documents aren’t in the mail yet, there’s still a lot of information you can start gathering today. For example, locate the Social Security cards for yourself and, if applicable, your spouse and dependents. This ensures that, if you don’t find them and don’t know the numbers, you have time to request new cards.
Similarly, track down your copy of your tax returns from last year (2017 taxes filed in 2018) – being able to refer to them will speed up your filing this year.
There are various other items you can start collecting now, including, but not limited to:
- Receipts for business or self-employed expenses
- Records of rental property expenses
- Property tax records
- Educational expense records
- Charitable donation records
- Medical costs information
Any details that you can pull together today will make your filing day easier. Then, you can put the information into a folder and make sure it is ready.
2. Plan for Incoming Documents
While employers and various other entities have until January 31 to send tax documents to filers, that doesn’t mean you shouldn’t start planning for their arrival. Begin by figuring out which companies should be sending what, and create a list to track the information.
In some cases, you can refer to your previous tax filing for guidance. However, you can also create a simple list based on your situation.
As you start to plan, include potential records relating to income, such as:
- Form W-2 for wages
- Form 1099-G for unemployment benefits received
- Form 1099-Misc for freelance work
- Form 1099-R for annuity, IRA, or pension income
- Form 1099-D for earned dividends
- Forms 1099-B and 1099-S for the sale of property or stocks
- Form W-2G for gambling winnings
In most cases, you won’t have documents coming in all of those categories, but that can give you an idea of what may be arriving. This decreases the odds that you will file before you have all of the documents on hand, as it is easy to accidentally overlook a potential incoming document during this hectic time.
3. Max Out Your Retirement
Both 401(k)s and traditional IRAs can result in tax breaks, depending on your situation. If you haven’t hit your annual contribution limit, then you may want to stash extra cash in your retirement account.
This could potentially increase your deductions, lowering your tax liability. Plus, it can make your retirement more secure.
For a traditional IRA, you can contribute $5,500 annually or less if you are age 49 or younger. For those 50 and older, the maximum amount is $6,500. Those limits do not apply to rollover contributions, so keep that in mind if you want to add more to your account and make sure you are calculating properly.
4. Figure Out What You Need to File
While all taxpayers essentially have to file a federal return, only some also need to submit a state return. If you haven’t moved and your financial situation is largely the same as last year, then you can use your previous tax returns as guidance.
However, if you have relocated to a new state or had a significant change in your financial situation, then you may need to file a state return even if you didn’t previously.
There are only seven states which don’t require a state income tax return. They are:
- South Dakota
Two states only need returns if you had income from interest or dividends. They are:
- New Hampshire
If you live in any other state, then anticipate filing a state return as well, even if your move was recent. Additionally, be aware that you may have to file a nonresident tax return if you earned money in a state with state income taxes, even if you don’t live there.
5. Don’t “Spend” Your Tax Refund Before You Have It
Many people anticipate tax refunds each year, especially if they had one the year before. However, the tax law has changed significantly, so your tax burden may have changed even if much of your financial life remained steady.
If you want to use your refund for a big purchase, don’t spend the money now based on the assumption that you will get it back. You can’t be certain about your tax liability until you prepare your documents with all of the information on hand.
Ultimately, as the adage goes, don’t count your chickens before they hatch. Instead, wait until you know exactly how much you owe or how much you are getting back. Then, and only then, should you make a spending decision for your refund.
Do you have any tips for preparing for tax season 2019? Share them in the comments below.
- How Do You Get a Hold of a Live Person at the IRS?
- What You Should Know About the New 1040 Form
- New from the IRS: Increase in 401(k) and IRA Contribution Limits
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