Most people worry about filing taxes close to the end of the year, also around April 15. Tax saving strategies are available for you, however, if you wait until the last minute to utilize these strategies, they may not work well, or they may not be available at all. Here are 5 things you can do to prepare for filing taxes to get the best refunds.
Know your filing status
Your filing status reflects heavily on your tax liability. This is determined by whether you are married, preparing for marriage, single, or divorced. If you have children, then your dependents can get you preferential status as the head of the household. If a change in your status happens early next year, then that is no indication that you have promptly taken action (like changing your tax withholding) to account properly for your new expected tax liability. Look at your status now. You have enough time to fix any problems that may come up in the next year.
Organize your documents now
To make the most of the tax breaks that are available to you, you need to have the right documentation. If you own a charity, make donations, have dependents that you claim dependent care tax credit from, or any other provisions, then you need to have the right paperwork in order to prove to the IRS that you deserve the tax break. Compile your documents now, so when you get your formal tax forms next year, you can look at the numbers and see if they are correctly reported to the IRS.
Try to offset large profits
Investors who trade frequently have massive capital gains. This is not uncommon. Some decide to cut down some of their biggest gains, which is a good way to manage the risk of a future correction. To offset gains, you can utilize strategies like selling loosing positions to help you produce tax losses that can offset your gains on other investments. Waiting until the last minute can cause your stocks to deteriorate even further, causing losses that cost you big money.
Look back on your last return
On your last return, look back to see where there were areas that were problematic or stressful. Think of how you can alleviate that challenge next year. For example, if you did your own taxes and had trouble with the math, consider using High Speed Tax to prepare you for next year.
Decide how much tax you want withheld
According to the IRS, nearly three-quarters of the individual tax returns filed in 2017 resulted in a tax refund, the average refund being $2,782. If you received a big refund, it could mean that you are withholding too much tax. Decreasing your withholding might give you access to more of your money throughout the year to invest or pay down debt. That is if you have the discipline to actually save the money. So, don’t overdo your withholding. It can result in having too little tax withheld throughout the year. That could mean a big tax bill next year, in addition to a penalty for failing to estimate your tax well.