Tax season is almost here - we’ve put together five ways to help you prepare.
Watch Your Mail.
Keep an eye out for your W-2s, 1099s and other financial documents. These begin to arrive via the US Postal Service at the end of January. These documents typically arrive in envelopes marked "Important Tax Documents". Be sure to open them immediately and store the documents in a safe place. The information provided in these documents is important and might be time sensitive.
Tax time can also be a higher-than-average season for identity theft. Because of the quantity of financial information being mailed this time of year, identity thieves can rummage through mailboxes looking for tax documents that contain sensitive personal information. Make sure to retrieve your mail everyday and avoid letting it pile up. If you travel or are away from home for long periods of time, you might want to consider renting a locked mailbox.
Gather Receipts and Clean Out Files.
Don't wait until the last minute to start collecting and sorting through this year’s receipts. If you're going to be itemizing your taxes, every little deduction helps. Next year, it may be a good idea to start saving receipts digitally or begin using a personal finance software.
For now, starting the process of gathering receipts and cleaning out old files will help relieve some of the stress at tax time. Just make sure you don't throw away any old tax returns or important documents that you may need in the future.
Consider IRA Contributions.
If you haven't stayed on top of your Traditional IRA or Roth IRA retirement accounts throughout the year, time may be running out. April 15 is the deadline to contribute to these accounts. If you have the funds available to max out your allowed IRA contribution, now might be the time to consider that option.
Make a List of Income Sources.
Have you done any consulting work this year? Worked a part-time job? Both are considered taxable income and will need to be included in your filing. Now is a good time to start reaching out to employers to ensure any outstanding paperwork is in the mail. You don’t want to discover you’re missing something when you’re ready to file.
Review 2013 Tax Changes.
Last year, several tax cuts expired. The American Taxpayer Relief Act of 2012 – passed by Congress on January 1, 2013 - extends some cuts while allowing others to expire.
For example, individuals earning less than $400,000 per year (or $450,000 on a joint tax return) remain at 2012 tax levels. Tax cuts for those earning more than this have expired.
The Social Security payroll tax has also expired. This will raise the tax on paychecks from 4.2% to 6.2%.
These are not the only tax changes this year; there may be others that affect your finances. If you’re not sure how these changes may affect your taxes, it may be best to contact an accountant or other professional financial representative for assistance.