5 Tips to Prepare for Tax Season

    In Brief:

  • 2021 tax season is coming up soon.

  • You can prepare for it a number of ways, including checking your filing status, maximizing your retirement benefits, and tracking your charitable contributions. 

  • Read 5 tips to prepare for tax season below!

2021 is here, finally turning the page on a tough 2020. 

Unfortunately, that also means that tax season is here too!

But there’s no need to panic as the dreaded April 15 deadline steadily approaches. Be sure to check out these 5 tips to prepare for tax season below to avoid running into any issues, no matter whether you’re classified as an individual or business, or what your filing status is!

Decide How Much You Want to Have Withheld

This is a key decision for anyone during the approach to tax season. 

If you received a large refund last year, there’s a chance your employer may be withholding too much tax from your paycheck. Decreasing your withholding gives you access to funds for spending, saving and investing if you need them. On the flipside, it typically means a smaller refund check after the tax filing deadline. 

If you prefer a larger paycheck to help with your current financial goals, talk with your employer about adjusting your tax withholding. However, be careful not to have too little withheld, as this could lead to a surprise large tax bill in April and potentially even a penalty from the IRS. 

Check Your Filing Status

Reviewing your filing status is also key 

As your filing status often impacts how much you owe each year in taxes, it’s important to consider whether it will change at any point during the year. For example, an upcoming marriage may prompt you to file as a married couple in the coming year, something which would impact how much you owe. Consider your filing status carefully and take into account any major life events that would impact it in order to ensure that your taxes are accurate. 

Save Documentation for Deductions

If you’re a business owner and want to itemize your deductions, be sure to keep track of any receipts and other key documentation for eligible expenses. Although you won’t necessarily need to submit your receipts with your tax return, you’ll likely have to substantiate your expenses should the IRS audit your return. If you’re a homeowner, be sure to do the same thing for any home improvement expenses. 

Track Your Charitable Contributions

Want some good karma? Contribute to charitable causes for a tax deduction!

Although you can include charitable contributions to specific organizations in your itemized deductions, this usually requires a little bit of extra paperwork. Ultimately, the savings can be worth it though. It’s also important to note that non-cash contributions may need different records, like a description of your donation and its market value. While tracking charitable contributions takes time and a bit of extra paperwork, you can definitely reap the rewards in the end. 

Maximize Your Retirement Benefits

Finally, tax season offers a chance to take a closer look at your retirement accounts and maximize your benefits there. 

If you have a traditional 401(k) or IRA, you might be eligible for a tax break if you make additional contributions to these savings accounts. Be sure to understand the income and contribution restrictions for them first, however, to ensure that you’ll be able to maximize both your retirement benefits and lower your tax bill at the same time.  

Don’t Wait… Prepare for the 2021 Tax Season Today! 

Tax season is never anyone’s favorite time of the year, but it doesn’t have to be as bad as it seems. By following a few simple tips listed above, you can go into the 2021 tax season with confidence and not have to worry as much this year!