January signals the start of the tax filing season, this is when people start their tax filing process and as always, good practice is always to start doing this ahead of time rather than at the last minute. You do not want to file your taxes late in April as this often leads to penalties and interests. What’s worse is that you could miss out on potential claims and exemptions if you do things in a rushed way.
Even if you thrive under pressure, starting the tax filing process is something that will benefit you if you begin early. This includes planning your year-end tax filing as well as documenting all receipts, payments, and invoices. There are several ways that you can use to optimize your tax filing and here are three that you can start with:
- Balancing your Deductions Against Itemizing
If you start your tax filing early, it will also give you a chance of identifying possible deductions that you are legally and eligible to claim. When the Tax Cuts & Jobs Act was introduced, it came with higher limits for the standard deduction and reduced personal exemptions, which leads to a lower tax bill. Once you have an idea of your deductions and claims, you can then correlate your estimated tax liability with the items that you might need to pay back or get a refund.
- Saving into your Retirement Accounts
With a traditional IRA, your contributions may be fully tax-deductible. An additional deduction can reduce your taxable income for the year. You may be filling your taxes in 2019 but that does not mean you’ve missed the deadline to make payments for your retirement. You will still be able to open and place funds into an IRA or ROTH IRA account. A Roth IRA would not give you a reduction, but you can reap the benefits of the tax-free withdrawals when you’ve reached retirement.
- Include your Dependent’s Social Security Numbers
If you file yourself as a ‘head of household’, whether you have children or not, you will need to provide the Social Security numbers of your dependents to make any applicable tax credit claims such as the Children and Dependent Care Credit as well as the Earned Income Credit. The issue arises when two people claiming for the same dependent, which is usually the case in divorced couples claiming for the same child. So, make sure this isn’t the case with your ex-spouse otherwise your returns could be delayed. Reviewing the IRS guidelines is vital if you are intending to claim the child care credit to see if you are eligible.
- Get advice from a financial expert
Another way of optimizing your filing is to speak to your financial advisor. It can be extremely confusing and overwhelming to deal with taxes. If you find your tax filing confusing, or if there are plenty of things to calculate, your financial advisor would be able to dispense the right information, guide you understand the terms, how to file your taxes strategically, maximize your returns as well as avoid any future penalties and audits.
Finally, the most obvious way to optimize your tax filing is to start early- it will be worth it.