It’s that glorious time of year when the excitement of the holidays is long gone, the thrill of the New Year fades, it’s not quite spring yet, and we all feel the burn of tax preparation season. That’s right, as April 16th (aka the deadline to get your taxes done) approaches, many of us are scrambling to get our taxes done, and perhaps more importantly, many of us are working hard to ensure we don’t mess them up this year. Because unless you’re really good with numbers, you studied accounting or you work for the IRS, taxes can be really confusing and really boring. But the good news is that you can master your taxes without messing up, and even better, you can do it while also minimizing stress. As CNBC reports, according to Geoffrey S. Cable, managing director, Destination Wealth Management, the trick is to get a head start. Which is perfect because it’s the beginning of March, and you still have some time. He argues, “you should spend as much time preparing for your taxes as you do in planning your family vacation. Just as you collect brochures, search for deals online or discuss destinations with your spouse, you should assemble your tax related information over the course of the year, not right before the deadline.”
Next, you need to understand the basics of the tax system. Investopedia explains, in basic terms, “citizens are required to report and pay taxes on all income they have earned over the year. Gifts, such as inheritances or scholarships, are not considered part of this category. The U.S. tax system is progressive, which means the more income you earn, the more taxes you pay. Your total earned income is known as gross income.” So when you file your taxes, you are assessing how much you have already paid to the government throughout the year (typically employers withhold money from each paycheck for tax payments), and then figuring out if you owe more or if you are owed a tax refund based on your financial and life situation.
Once you gear up to for tax preparation, and you set aside an appropriate amount to time, then it’s time to get organized. The more organized you are, the less likely you are to make mistakes simply because you are rushed, you overlook important details or you’re overwhelmed. Make sure you have all your necessary financial receipts in place, which includes your W-2 (the form where your employer reports your annual salary and taxes already paid) and your 1099 (if you are a contract employee instead of a salaried employee).
If you’re not sure what forms you need, you can reference online tools, or speak to an accountant. This is especially a good idea if your taxes are a little more complicated than a straightforward tax return. How do you know if that applies to you? As Cosmo reports, LearnVest CEO Alexa von Tobel explains that your taxes will be simple if “you are a standard, salaried employee without fancy stock options or partnerships who doesn’t freelance on the side. You don’t own a home and aren’t planning any big life changes.” If that describes your current life situation, then you can most likely file your taxes on your own, without outside help. If you do have a more complicated financial situation, then you might want to enlist some backup in the form of an accountant or tax consultant.
While most of us know we have to pay taxes on our salary (or paychecks if you are a freelancer) you might forget that you also need to pay taxes on your investments, which is called capital gains tax, as well as your property, if you own a home. Make sure you assess all of your income as well as your life situation. Did you have a baby recently, did you get married etc.?
As far as online tools go, there are tons of tax programs and websites at your disposal to make it simple and stress-free to file your taxes on your own. And remember, these programs are developed to help the masses file their taxes correctly, legally and on time. So they are meant to be user-friendly, not confusing. For example, TurboTax is a tool that does the form completion for you based on how you answer some key questions. “TurboTax works like an interview—we ask you easy–to–answer questions about your life that affect your tax situation (i.e., Are you married? Do you have kids?) and fill in all the right tax forms behind the scenes.” They also have agents available to answer your questions and help you along the way, and they check your work so that your tax return is accurate and they have you covered in case you make some errors (hey, you’re human).
Again, the more organized you are as far as the documents you need and the deadlines to submit those documents, the more in control you will feel, and the more likely you will be to get everything done on time and without freaking out that you’re forgetting something. Start now, ask questions, don’t be shy, and do your research. Taxes might not be fun, but they are important, and if you want to make sure you don’t mess them up, and you don’t let them mess up your life, you need to get a jump on them today.