by Stacy Francis, CFP®, CDFA
Tax season is here! Time to panic over lost receipts, missing information on cost bases for stocks, and 1099s that won’t ever show up; or, time to spend an afternoon with your CPA; or, click a few buttons on your computer keyboard? It all depends on how organized you’ve been and how well you’ve prepared throughout the year, not just in April. Below are a few tips for how to reduce your tax-related paperwork, now and in the future.
Meet with a CPA. This is by far the easiest way to take the tax filing burden off your shoulders. CPAs file people’s taxes for a living, so you can trust that they know all the tricks and traps. Save yourself time and hassle by asking friends, colleagues or family for a referral.
E-File. If you do not wish to use an accountant, you can find a variety of simple and user-friendly e-filing programs online. Many of them are free, as long as your income is below certain limits. Save yourself some wrestling with your printer and a trip to the post office by filing online.
The Manila Folder. Throughout the year, you will need to save documents such as receipts and transaction reports from your investment accounts. Whenever you receive one of these documents, stick it in a labeled manila folder. If you’re paperless, create a folder on your computer for the same purpose.
Take Advantage of IRA Accounts. Saving in IRA accounts will save you heaps of paperwork, as this eliminates the need to track cost basis and sales price for each security, and include these in your tax report. Once the money is in your traditional IRA or 401(k), it is off your tax record until you start to make withdrawals, at retirement. In case of a Roth IRA, you never have to worry about it again!
Take the Standard Deduction. True, many people save a lot of money by itemizing . . . but it does require both time and effort. If your objective is to keep things simple, take the standard deduction. However, it is usually worth it to itemize. It could save you a lot of money.
Filing your taxes is never fun – unless, of course, you are expecting a huge refund! Use these tricks to simplify your tax filing process and minimize the time you need to spend in your home office, shuffling paperwork.
Should You Do Your Own Taxes?
Here are a few things indicating that you could be better off on your own:
- You know your filing situation (you are up to date with legislation, know your status, etc) and have a very simple financial situation.
- You are organized and have your paperwork ready to go.
- You prefer not to disclose your financials to anyone.
On the other hand, these things may be signs you need help:
- Your financial situation is complex.
- You don’t want to waste time and energy preparing your return.
- Your life has changed drastically, and your filing this year will be very different from last year.
- You want the confidence of working with a trusted advisor.
Should You File Jointly or Separately?
What are the benefits versus drawbacks associated with married couples filing separately? An excellent question. The answer will depend on the circumstances. Below are a few examples of cases where it may be a good idea to keep this one aspect of your life together separate.
- You or your husband has made little money and had lots of medical expenses. By filing separately, the proportions of the two may work out so that you or your hubby can itemize the medical expenses and save well-needed dollars.
- Your partner uses questionable techniques for keeping his tax dollars to himself. While tempting, such actions are illegal, and if you sign the same tax return, you, too, are responsible. If you file separately, your chances of arguing in front of a jury that you didn’t know are much better.
- Your marriage is crumbling. If you are fairly certain that your twosome isn’t going to last, you may want to file separately in order to minimize the paperwork you need to do together later. It is also important to file separately if you are concerned that he is not being 100% honest on his tax reporting.
It is imperative that you stay up to date with the newest rules and limits for the different tax brackets. Taxation is a complicated matter – but you do have options. When you add knowledge to the pot, you can make an informed decision.
Taxes: Quick Tips & Free Resources for Women
One of the best ways to overcome anxiety and experience less stress around taxes is to get informed and ask for help from professionals. Women especially have to be informed because we have special tax issues.
- Women tend to live longer than men.
- Women earn less money compared to men.
- Women hold two times as many single home mortgages as those by men.
- Women-owned business have special tax implications.
With all these issues facing women and their taxes, it is crucial to know where you can get help. The good news is that it’s pretty easy to find help with taxes. Aside from finding your own accountant, you have other options. Some of these options include:
- Savvy Ladies’ Helpline – Submit your question and we’ll put you in touch with a tax expert. It’s confidential and 100% FREE.
- Understanding Taxes – An interactive online tax tutorial by the Internal Revenue Service (IRS). This program is split into two parts: a) the HOWs of taxes and b) the WHYs of taxes.
- Volunteer Income Tax Assistance (VITA) – This program is designed to help those individuals whose incomes are less than $36,000. Another advantage is that VITA has locations in very convenient places such as libraries, schools, shopping malls, community and neighborhood centers, and other locations. You can search for a VITA location near you.
Lastly, keep in mind the following five tips (courtesy SCORE) on how to start tax season by filing taxes correctly:
- Consult an advisor.
- Pay estimated federal and state taxes four times a year.
- Keep good records of both income and expense.
- Ask your tax advisor about special deductions.
- Schedule a tax-tune up at least once a year.
Remember, it’s important you stay ahead of the tax game by being organized and well informed. It will only make your tax season that much easier and (hopefully!) stress-free.
