The IRS is working to do a better job at letting taxpayers know how to make tax season less stressful. The trick is approaching taxes as a year-round process. Baby steps throughout the year mean less frustration when it’s time to file, but if you’re really on top of it, it can also mean reaping more benefits from tax season.
💡Pro Tip from Mohammad: Work with your CPA to develop a tax strategy: which bracket will you be in, how can you maximize retirement savings, and what filing options do you have.
Here are six year-round habits the IRS recommends:
1. Keep Your Records Organized
Set up a system — digital or paper — to store all your tax documents (W-2s, 1099s, receipts, etc.) as you receive them. Organized records make filing faster and help ensure you don’t miss valuable deductions or credits. It doesn’t have to be beautiful. This can be a single folder on your computer where you put any documents.
2. Know Your Filing Status, and your Options
Your filing status affects your standard deduction, tax bracket, and eligibility for credits. Major life events like marriage, divorce, or having a child can change your status, so review it each year. We always recommend chatting with a CPA to see what the best approach is for your financial situation.
3. Understand Adjusted Gross Income (AGI)
Your AGI determines your tax rate. The lower your AGI, the less tax you may owe. Planning ahead can help keep AGI down. How?
- Tax Loss Harvesting
- Contributing to Retirement
- Charitable Donations
- College Savings Plans for Your Kids
- Approaching Joint Filing Strategically
- and more!
4. Withholding Accordingly
Our first years of employment are usually when we decide how we want to approach withholding. Do we aim for breaking even? Owing? Getting a big refund?
Since taxes are pay-as-you-go, make sure enough is withheld from your paycheck. Use the IRS Tax Withholding Estimator and update Form W-4 with your employer if needed.
If you’re self-employed, quarterly estimates will save you from penalties at the end of the year, so you’ve already got to plan ahead.
5. Update Address & Name Changes
Report address changes to the USPS, your employer, and the IRS (Form 8822). Name changes must be updated with the Social Security Administration. Keeping info current avoids filing delays (and refund delays)
6. Save for Retirement
Contributions to a workplace retirement plan or traditional IRA can reduce your taxable income while building long-term savings.
Our Tip: Start Early and Plan to E-File
Every year around April 1st we get panicked calls from people who realize they only have a couple of weeks left to prepare, pay, and file their taxes. Calling your CPA and setting up an appointment between Mid-December and Mid-January is the best approach. This way, when the documents come in, you can upload them to the portal and know you’re on the client list.
Why E-file? E-filed returns get processed faster, get refunds faster, and have better data protection than sending through the mail.
Stay proactive with these steps, and you’ll walk into the next tax season far more prepared.
