8 Smart Finance Tips You Should Invest In
You know what they say: the only certainties in life are death and taxes. While you can’t avoid them, you can make them a lot less stressful by planning ahead.
The beginning of the new year is time for recovering from the holidays, setting new resolutions, and diving back into our routines — but it’s also the perfect time to take control over your finances. We understand that with various forms to fill out, withholdings to put away, and deductions to track, you may feel a bit overwhelmed. That’s why we’ve compiled a list of simple tips to help you stay on top of your money during tax season this year.
Create a Tax Calendar
It isn’t always easy to stay on top of tax payments. We get it — between work, kids, your home, your friends, a quarterly payment or periodic credit pull isn’t always top of mind. If you know you’re likely forget, try creating a financial planning tax calendar or setting reminders for appointments, paperwork, and other to-dos. You do the same for doctor’s appointments and car maintenance so why not do it for your money?
Know Your Status
Before you get started filing your individual tax return, you need to know the status you’re filing under. Failure to file under the correct status will make life a lot more difficult, as many tax credits, deductions, and the amount of taxes paid rely on it.
There are five statuses you can file under:
– Married filing jointly
– Married filing separately
– Widower with dependents
– Head of household
Don’t worry, if you do file under an incorrect status, it can be fixed, but knowing the right status beforehand will save you a lot of time. And keep in mind, more than one status may apply to you.
Pay Attention to your Records
Anyone can get audited by the IRS. An IRS audit is an in-depth look into your accounts and records to make sure you’re properly reporting how much you make and complying with tax laws. Though this may be unlikely depending on your situation, it’s important to keep every record and document you’ve used to complete your taxes. These records can include income forms like a W-2, or 401(k) statements from your retirement accounts. The IRS has about three years to decide if they want to audit your return, so keep your records organized and handy from then on.
Take Advantage of Deductions
There are a variety of deductions you may be eligible for that can give you a tax break, and you want to make sure you take advantage of all of them. Parents may be eligible for the child tax or child and dependent care credit, while students may benefit from the American Opportunity credit which is for college education costs. You don’t want to miss out on an opportunity to get rewarded for the expenses you pay.
Check your Interest Rates
Interest rates will play a major role in most of your financial decisions. When you’re deciding which loan to pay off first, you should choose the one with the highest rate to avoid paying additional costs. If you’re debating which savings account to open, you want the one with the best interest rate. And when it comes to credit card debt, the worst headaches always come from compound interest rates. So the takeaway here is to always pay attention to these rates when determining which savings or debt commitments you should focus on.
There are two types of deductions: standard and itemized. Standard is a fixed amount set by the IRS that reduces your adjusted gross income, while an itemized deduction is an eligible expense that you can claim on your federal return to minimize your taxable income. You can find a full list of possible deductions here to see which may be applicable to you.
Put Money Aside Early
We may not always adjust our withholdings correctly on our paycheck. When we take out too little, we end up owing the government additional money come tax time. Just in case the situation arises where you do need to pay it back, we recommend taking out a little money from each paycheck to put aside. If you end up owing taxes, you’ll already have an account ready to pay for it, instead of dipping into your personal savings.
Stay on Top of Due Dates
Just like a bank has fees for over drafting, the IRS will charge you with penalties and interest if you don’t file your taxes on time. The IRS has specific due dates, which means that your check must be postage marked by that day — but sooner is always better than later. There are limits on how much time can pass before the IRS may no longer assess and collect on federal income taxes. But if you do fail to file your return, the IRS can assess and collect from you at any time. So file your return ASAP. Even if it’s past the due date, it’s better than to not file anything at all.
Hire a Professional
Between new laws, different investments, and growing families, our needs and eligibility will continue to change each year. Staying stagnant in your filings will cause issues down the road. If your tax return has become more complicated or you’re unsure where to start, a CPA or tax preparer can help you make sure you’re covering all the bases and maximizing your investments and deductions. Our team at Brilliant Accounting will know exactly how to handle your unique situation and alleviate any tax-related concerns you may have.
Tax season doesn’t have to be overwhelming. With the right resources and guidance, you’ll easily be able to make a plan that suits your needs. To make sure you’re prepared for this tax season, reach out to our team at Brilliant Accounting. We look forward to helping you.