Updated: May 31
For many people filing annual taxes is not a favorite pastime. The amount of time to work through the volume of paperwork that shows up in your mailbox and inbox can be daunting. The good news is that there are five steps you can take to make tax filing time a bit easier on yourself.
1) Get organized
Organization is the key to making tax filing season go smoothly. This starts with an understanding an inventory of the relevant documents for you and your family. A good place to start is looking at last year’s documentation and returns. Some of the key documents you are receiving and need to keep are as follows:
Form W-2 from your employer(s)
1099’s for interest and dividends from banks and brokerage accounts
1099(R) for retirement plan distributions (including back-door Roth transactions)
Form 1098 for mortgage interest (may have multiple forms if you refinanced in 2021)
Letter 6419 for 2021 advanced child tax credits reconciliation
Records of any crypto currency transactions
Come up with a system for when you receive tax related documents in the mail or in your inbox. Yes – you will likely be receiving documents in a mix format of paper and digital this year.
Planning recommendation - Save your paper documents in a secure tax related folder at your home. But also scan them into digital form as well. This will help ensure nothing is lost and you are keeping digital records. If you are unsure, or feel you have too many documents, at least scan in the most important ones (W-2s, 1099s, etc.)
2) Start early
As the old saying goes, “it is never too early to start” most certainly applies to tax filing. Returns are currently due for most taxpayers on April 18th this year. This is the normal deadline so if you needed the extra time last year you need to get started now.
Returns are able to be filed as early as January 24, 2022 but the vast majority of people will need to wait as your various tax related documents arrive. However, this should not stop you from preparing to file. If you file your taxes yourself you can begin entering information into the system and then wait to actually file. The same is also true if you work with a CPA and are only waiting on a select number of documents.
Not rushing to file your taxes will likely lead to better results and a smoother process
3. Better next year
If only we could travel back in time to make life a litter easier on ourselves. While we do not have time travel yet, you can make next year’s tax filing a little bit better with some pro-active steps now. Look over the different documentation that you are receiving. If you have a variety of small bank or brokerage accounts considering closing and consolidating them. Also, review if any nuanced tax planning or financial strategies are causing more paperwork, time, and headaches than they are worth.
4. Evaluate withholdings
Everybody loves getting a refund! But if aspects of your tax situation may have changed in 2021 and you are either receiving a large refund or owe the IRS then you may wish to consider adjusting your withholdings. Refunds are great, but your family may benefit form having access to those funds earlier in the year.
5. Hire a professional
If filing your taxes is causing you stress or taking up too much of your time, you may wish to consider hiring a professional. In addition to the time savings, working with a professional to pro-actively plan for your taxes can lead to better outcomes.
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GuidePoint Financial Planning - Reston Financial Planning
Ryan Phillips, CFA, CFP® is the founder of GuidePoint Financial Planning. He is passionate about helping busy families plan, save, and invest for their financial future. Contact him today if you are interested in learning more about the benefits of working with a fee-only (no-commission) financial planner.