10 Ways to Make Tax Season Less Painful
For most of us, the stress of tax season is so overwhelming that we put it off until we just can't put it off anymore. To prevent this year from being a repeat of the last, here are 10 tips to keep you in the right frame of mind as tax time approaches:
1. Organize your documents: If you're like most people, your receipts, forms, checks and statements are either crammed in a shoebox or strewn about the house. Gather all of your tax documents and make two little piles:
When you're done organizing, retire the old shoebox. You can go to any office supply store and get a well-made file folder or binder to hold your documents. In fact, get two -- one for this year and one for next year. Having a good-looking home for your documentsmake it easier to stay organized and will make you feel better about the whole process.
2. Get your family involved: In most households, one person is designated as Minister of Finance, responsible for paying bills and maintaining fiscal order. But during tax season it can get frustrating out there if you're all alone. Asking someone to be around to help track down receipts or even just to empathize can make all the difference. Treat it as the perfect opportunity to update your spouse or adult children on the state of the union, so to speak. Communication is the key to building healthy relationships with both your family and your.
3. Don't wait until the last minute: Just don't. Set aside a weekend to calmly and rationally fill out your return if you're doing it on your own. And please don't even think about popping into a tax preparation office after work on tax day. It is guaranteed to be an unpleasant experience.
4. Ask for help: If you are having problems mobilizing, or if your tax situation is more complicated than you think you can handle, then it's time to ask for assistance from a tax prep service or an accountant. But plan on spending some time going over the return with your tax professional, asking plenty of questions along the way. While it can be less stressful to just hand off the work involved in preparing the return, you are ultimately responsible for whatever you sign and file.
5. Double check: Addition and subtraction errors are easy to gloss over. Take your calculator and 10 minutes to peck out the numbers. Also double-check that you've accounted for any tax changes that have come into effect. We've made it easy by compiling The Most Important Tax Changes to Know Before Filing Your Return.
6. E-file: If your taxable income is less than $57,000, use the IRS website and software to e-file for free! If you make more than that, you can still e-file for free if you can use the free forms provided by IRS.gov without the benefit of tax software.
If you're like most people and you need guidance from an online or in-office tax preparation service, you are still encouraged to e-file your return, so take advantage of this speedy and cheap alternative to the USPS.
8. Start preparing for next year: Since you bought two binders per Tip #1, you can label one for the tax year and the other for the following year. Keep the following year's binder accessible and put relevant receipts, statements, and in it as you go. This may seem elementary, but this one tip could keep you from having to sort through all your old credit card statements looking for a medical expense or tear apart the house trying to find that darn Goodwill receipt from July. Everything goes in the binder.
9. Minimize trading in taxable accounts: Unless you are really organized, try to keep any trading inside tax-advantaged accounts like your Roth IRA or HSA-linked trading account. Getting a 10-page 1099-B from your broker in February will probably not cut down on your tax-time anxiety.
The form 1099-B reports sales of stocks, bonds, commodities (or anything else) in your taxable account. For each sale you'll have to list your cost basis, the purchase date, the sale price and the sale date. If your sale price was higher than your purchase price, congratulations! You now have to pay taxes on your capital gains! If your sale price was less than your purchase price, you can deduct a portion of your losses from your taxable income, lowering your overall tax bill.
If this all sounds like a giant pain, it's because it is a giant pain. And I haven't even talked about long-term gains vs. short-term gains or reconciling wash sales. That is beyond the scope of a Top 10 list.
However, if you trade in your tax-advantaged account, you don't have to report your trades. The IRS doesn't care what you do within your tax-advantaged accounts because the transactions aren't taxable. Since gains and losses don't need to be reported, you don't need to meticulously record what and when is bought and sold in your IRA.
10. Be honest with the IRS…and yourself: As far as the IRS is concerned, there is little room to wiggle around the truth, so it's best not to try.
Simple measures like keeping detailed self-employment records, honestly reporting whether your home office is strictly for business, or documenting unusually high expenses will save you a world of pain if your tax return happens to raise a flag. We've put together a guide to help you avoid trouble: Top Tips for Avoiding a Tax .
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