Preparing for Tax Time
Do you have a system? Do you have a plan?
The holidays are behind us and we hope yours were spent in good health! Now is when it really starts to feel like winter to me. The days are shorter and the weather makes it less appealing to be outdoors. Maybe the IRS had that in mind when April 15th was chosen as the tax filing deadline. 😊 Winter months are made for preparing for tax time.
Statistics
25% of Americans delay filing because they feel it is too complicated. And nearly 20% do not file on time, requiring an extension and sometimes penalties if not enough was paid with the extension.
I can’t help but think that many who delay simply do not have a good system for tracking their tax related income and expenses, and do not know what they should wait for before they file, so they wait for the deadline.
There’s a better way
Because we work with numerous clients to help them get their tax records collected and organized, we know that most people receive the same list of tax forms relating to various sources of income, health, mortgages, etc. each year. So, this year, start a list! Keep track of all the forms you get this tax season. Then you will have a checklist for next year and won’t be wondering what might be missing. Your CPA may even provide a guideline based on last year’s tax return.
The list will change as you add or consolidate investments, retire, pay off a mortgage and so forth, but the tweaks are usually minor.
Expense Tracking
Income is what you get taxed on, so the IRS makes sure they hear from companies who provide you with statements. They do not care if you miss a deduction. That is up to you to track. Unless you have a business, medical expenses are likely your main focus. Keep in mind that the standard deduction will be $14,600 per person in 2024. Your medical insurance and expenses must exceed that to qualify. Charitable giving is another category to track. Keep detailed receipts with dates and amounts. Donations of goods are limited to $500, and your records should include the list of donations and their fair market values. Charitable giving is limited to 60% of your Adjusted Gross Income (AGI) and can be carried over if you’ve been a really good Santa.
How to
The basic way to track all of this is a file folder (or box) where all of your tax receipts and documents are kept during the year. Group by type of income/expense in January. A spreadsheet can help you get accurate totals. Software, like YNAB or Quicken, has built-in reporting to help you track everything and produce reports for your accountant. Documents can be electronically scanned and stored by year to eliminate paperwork filing and retention. Be sure to shred what you don’t keep!!
If preparing for tax time seems daunting, you might benefit from some help with organizing and putting it all together. This is an especially good time to start tracking things for the NEXT tax year! Call us if you need help. We even handle the shredding!
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