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Even if tax season is still a long way away, it's never too early to start getting ready. You can take action now to ensure a seamless tax season next year. Getting a jump-start on the next tax season will be extra valuable for you if you had a tough time this year—perhaps you owed more or were refunded less than you'd hoped. Luckily, prepping for tax season can be a streamlined and simplified process—when you start early.
Here are six things you can do right now to cut the costs and concerns of next tax year.
1. Get Organized
Set aside a dedicated place to gather your tax-related documents. Be it a shelf, a tray or a file cabinet—that part is up to you. This is where you'll put documents such as proof of charitable donations, records of mortgage interest, medical bills and last year's tax return. You don't even need to worry about having it perfectly filed away immediately—the important idea is to maintain your folder all year and add relevant materials to it whenever possible.
2. Go Digital
In addition to keeping physical receipts and other documents in your catch-all file, you could consider using a dedicated app to electronically track and categorize your expenses. You could try Keeper Tax to track spending and Everlance if you need to track mileage for reimbursement. Then, you can relax while all of that valuable tax info is collected through the year on autopilot.
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3. Adjust Your Withholdings
Try the IRS' tax withholdings estimator tool to gauge your best plan of action. Then, ask your employer to pull up your W-4 form and review how much you want taxed now versus during tax season. For freelancers: Pay taxes quarterly so you don't get stuck with a huge tax bill later.
4. Prep Your Investments
If you're not gearing your investment strategies for tax season, you may be missing out. Familiarize yourself with tax-savvy trading terms like wash sale, capital gains and losses, and cost basis to help optimize your investments for next tax season. And don't forget to spend this year contributing to tax-deductible accounts like 401(k)s and Roth IRAs.
5. Bundle the Right Expenses
This entails paying attention to your potentially tax-deductible purchases for the year. The goal is to ensure you land tax credits in all the right places.
For example, imagine you get a steep medical bill with the option to finance it or pay over time. If your health care bills add up to over 7.5% of your adjusted gross income, you could be able to deduct the expense if you pay for it during the tax year.
6. Decide if You Want (or Need) a Tax Pro
Hiring a tax professional is usually a no-brainer if your tax situation is complex, but don't be shy about hiring one even for simple returns if you think they can help you pay less in taxes or get a bigger refund.
The list of tax forms, exemptions and deductions can seem like alphabet soup. Finding a qualified tax professional can mean the difference between filing a flawless tax return and one that contains missed or inaccurate credits, exemptions and deductions.
If you choose to hire a tax professional, early preparation is still key. Your chosen pro can offer advice all year long to ensure the best tax return possible. Plus, you can often dodge higher fees when you don't make your CPA's job more difficult.
Help from a professional tax preparer typically runs from under $200 to nearly $300, according to the National Society of Accountants, depending on whether you itemize your deductions. Tax preparation software costs up to $200 (unless you qualify for and use free versions). Weigh the cost of a CPA against how much you stand to miss out on if you try to navigate tax territory solo.
The Bottom Line
Thinking about the next tax season right now and taking actionable steps where you can will help you greatly simplify matters when tax prep time hits next year.
As you take steps to get your taxes in line, it's also worth considering the importance of keeping an eye on your credit health. You can check your credit report and view your credit scores for free through Experian.