Yesterday was Tax Day – congratulations, you survived! Either that or you are mad at yourself for standing in line at the post office :/
I am going to be honest, I don’t do my taxes. I am fortunate enough to have my father who has a great working relationship with our CPA, set everything up for me. (The benefits to having a financially educated family. The downside is I don’t know how to do my taxes. :/ ) It is convenient to have a family member help out with taxes, especially being in my twenties, when I really am still learning what this all means.
The main learning for me? The better you do and more money you make, the more Uncle Sam likes to come a knockin’. I now understand how the Republican party is so large.
Anyways… after this year having my taxes done, I dug a little deeper when I went to sign my tax return. Here are some key things to know as you do preparation for next years tax day.
- Know your financial situation
If you know you have a more complicated financial situation, don’t try to do your taxes yourself. Hire someone. If it is your first time investing, consult a professional on what you will need to have when it comes time for tax day (k1s, 1099s… more numbered forms). If you are wanting to grow your wealth and earn more, know that you might need to set money aside to pay the government additional taxes. (I know it stinks and I am sorry!)
- Have the right person/software do your taxes
Once you determine your financial situation, you will to find the best way to get your taxes done. If you have no idea what you are doing, consult a CPA. If your financial situation is basic or have moderate complexities, you can try tax software like TurboTax. The more complicated your finances get, the more likely you should be using a CPA. Not sure where to find one? Ask family or friends. H&R Block could be a good first step as well.
- Keep important tax documents.
Throughout the year, keep important tax documents. Don’t wait until tax day to go looking for them either; the chances of you finding them are very small. As soon as you get a tax form in the mail, get a PDF version (or scan it in) for electronic copies. I keep a folder on my laptop for Tax Documents so that throughout the year, as I collect items, like vehicle registrations, I can PDF the receipt and into the folder it goes. The ease is when you go to do your taxes, everything is all in one easy file for you.
- Ask what can be deducted from your taxes
Each year, I find new things that can be deducted. Like, did you know that your vehicle registration can be deducted? Keep your receipt from the DMV and you could get about $100 back! (If you knew that already, sorry – it was a realization moment for me two years ago). Education can be deducted, like tuition or even learning materials for investing (like books). Not sure if things for work can be deducted? Just google.
- Read through your tax return
This might seem very daunting and burdensome, but read the first few pages of your tax return, or better yet, try and follow along through your tax return. The math IS really simple, I swear! The key is knowing where your money went and where it came from. This will give you a better understanding of how much you pay and how much you get to keep of your money.
- The Estimated Tax
This year is the first time I have had to pay an estimated tax which basically is the amount you owed the government this year projected ahead so that you could have a safe harbor for next year’s taxes. Basically, you won’t have to pay a penalty if you under estimate owing the government your taxes. What I didn’t take into account, was having some extra money lying around to pay for this safe harbor. I would recommend stashing some extra cash away for taxes each year for the JUST IN CASE.
What did you learn from doing your taxes this year?