It’s the end of 2020, and we all know what that means: tax season is just around the corner! As we prepare to ring in the new year, we’re also planning how to tackle our taxes. But you don't have to wait until the clock strikes midnight – you can get started on your tax paperwork as soon as you want. Take it from us: many opt to wait until the last minute, but that can cause unnecessary stress.
For many, tax season is simple because you don’t have any particular or complicated situations. But for others, there are business expenses, dependents, charitable contributions, and first-time homeowner paperwork to consider. Even one of these items can make your taxes more complicated.
At our CPA firm, we help people across the nation navigate their taxes, and we can help you, too! We specialize in the MCC tax credit and help new homeowners understand some of these first-time homebuyer programs, but we also help people with any tax question or need. In the meantime, read about these five ways to prepare yourself for tax season so you can feel successful, even when asking for help.
#1 — Anticipate Tax Season
This one is relatively obvious, but the more you anticipate the start of tax season, the better prepared you’ll be. That means having a system in place that’s easy to use throughout the year and anticipates your specific tax needs, such as:
#2 — List All Income & Potential Deductions/Credits
Have you ever sat down to start your taxes and realize you have no idea where to begin? (See #1 for a little organizational help.) Your go-to point is income, even if you’re organized. If you only have one job, you may be saying ‘huh?’ and wondering why we’re talking about multiple income sources. Besides having various positions, there are other sources of income to consider, such as mutual funds.
When it comes to these alternatives, there’s often a paper trail requirement. As you make your list of income sources, start organizing your tax forms. Any sort of income should accompany a tax form to make it easier for you.
Deductions & Credits
Likewise, keep track of your deductions and credits. Typical types include student loan interest payments, dependents and child tax credits, earned income, charitable donations, MCC tax credit, etc. By creating a list, you’ll start to think about anything you need to support this step. For example, if you’re using popular first-time homebuyer programs like the MCC tax credit, then you’ll need to file Form 8396 with your taxes.
#3 — Consider Making a Charitable Donation
If you can, consider making a charitable donation before the end of the year to offset the amount of income taxed. Philanthropic gifts are trendy at the end of the year for a reason — the end of tax season sneaks up on us in December!
But although it may seem like a loophole, there’s a reason why these donations receive deductions. Charities need funding, and by donating to a cause that’s important or near and dear to you, you’re not only supporting vital work, but you’re also receiving an incentive. A tax deduction incentivizes many charitable contributions each year, and that can be a wonderful thing.
#4 — Consider a Contribution to Your Retirement Plan
Much like making a last-minute charitable donation to reduce the amount of taxable income, contributing to your IRA or retirement plan works in the same way. Many of these plans allow you to contribute funding without being taxed on that income. However, you’re often taxed later on when you use that retirement money. But for the time being, it’s a great way to hold onto your income without having to pay taxes yet. Plus, you’re preparing yourself for retirement, and that’s also very important.
#5 — Schedule an Appointment
Lastly, get your CPA appointment on the calendar as soon as you can. Although user-friendly online programs like TurboTax make waiting until the last minute kind of doable, it’s never advised (plus, they cost more than our one-on-one personalized services). You don’t know what your taxes will look like each year, so it’s essential to start thinking about them early.
At our online CPA firm, we help people navigate the complexities of first-time homebuyer programs like the MCC tax credit and assist clients in many other ways. Anything related to taxes and tax season is our specialty, as well as:
By following these five tips, you can feel prepared for tax season, file correctly without worrying about audits, and save more money by finding all the credits and deductions possible.