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A matter of days stand between taxpayers and the opening of the IRS’s 2014 tax filing season. While most people will wait until April to get organized, we’ve compiled some tips from the experts on how to prepare now both for this year's tax filing season and next.
A matter of days stand between taxpayers and the opening of the IRS’s 2014 tax filing season. While most people will wait until April to get organized, we’ve compiled some tips from the experts on how to prepare now both for this year and next.
1. Get Organized: Track down all of the tax information that you will need to file to ensure that you don’t make any mistakes. Keep track of your W-2s, investment statements, mortgage interest and property tax payments, receipts from charitable donations and other tax deductible expenses. Many tax preparation websites and services provide a checklist of all of the items you may need to gather in advance of preparing your return such as this one from H&R Block. Julia Brufke-Wenger of Phoenix Tax Consultants, recommends that you print a copy of your previous year’s tax return. “As professionals, we always run a two year comparison and this often identifies things that are forgotten during preparation,” she states. If you are self-employed, make sure to keep hold of all of the documentation you will need to complete your Schedule C. Lastly, unearned income such as interest and dividends from investments also must be reported, so you'll need the 1099-INT, 1099-DIV and 1099-B forms.
2. Communicate: If you use a CPA to do your taxes, start looking now rather than waiting until the last minute. You want to make sure that your tax preparer puts the adequate time and effort into your tax return. 'Don’t Mess With Taxes' author Susan Bell wrote a piece on what to look for in selecting the right tax preparer. In another post, she details the efforts the IRS is taking to regulate and test tax preparers to ensure a minimum level of competency. All important considerations. Once you find the perfect individual to entrust your taxes to, make sure to communicate with him or her any significant life changes such as a marriage, divorce, birth of a child, education expenses, medical expenses, or retirement as there are significant tax breaks for these items. Patrick J. McGonigle, CFP® of CJM Wealth Advisers, Ltd. based in Fairfax, Virginia also advocates reviewing your life changes and examining other events such as the sale of an asset like a house, stock, mutual fund, or collectible. All of these activities and events can have an impact on the tax you will (or will not) have to pay. Also, if you plan to move in the near future, make sure to update your address with the IRS so they know where to contact you. Form 8822 can be used for this purpose.
3. Plan for Next Year: While you may not have closed the books yet on 2013, Thomas F. Scanlon, CPA, CFP® at Bordiga & Company P.C. states that it’s time to start addressing your tax planning for 2014. “This could be something as simple as maximizing your contribution to your 401(k) plan at work,” Scanlon states. If your employer offers a matching provision, make sure you are contributing at least the maximum amount the employer matches to take advantage of that money. Also, before you finalize your 2013 tax return, Brufke-Wenger advocates calculating to see if you are eligible to contribute to an IRA. “Individuals have until April 15th of 2014 to contribute for 2013 if you are eligible to participate,” she states. Another important way to prepare for 2014 is to consider adjusting your withholding on your Form W-4 so as to minimize the amount you are over/under on your withholding for 2014. While most like receiving a huge tax refund at the end of the year, it’s better to make your money work for you throughout the year than for Uncle Sam. In addition, preparing your estimated tax payments for 2014 has gotten a little more complicated in regards to the Affordable Care Act. Starting in 2014, each individual must be covered under minimum essential coverage. If not, a penalty will be assessed via your 2014 tax return for failing to comply. Brufke-Wegner warns that no one is withholding for this change, so folks in this category should be prepared to pay. They can make quarterly payments in 2014 to cover this penalty or any other tax owed and not withheld.
With a little thought and effort put into your tax filing ahead of April, you can make the 2014 filing season a little less cumbersome for you. Good luck!
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