By Melinda Burns
For many people, taxes can cause dread and stress. This year was especially challenging and brought many changes to tax preparation. Three factors to remember for next year that help with the tax process remain constant: organizing financial documents, obtaining accurate tax preparation and evaluating the amount of withholding for next year.
- ORGANIZE FINANCIAL DOCUMENTS
Organizing financial documents helps ensure that everything you need for tax preparation will be easy to access. As documents start to arrive after December 31st, keeping them all in one location helps reduce stress. A folder labeled “Tax Documents” is an easy method. Some statements are available online and can be printed ahead of tax preparation to smooth the process and save time. Check all documents for accuracy including social security numbers and addresses. After you complete your taxes, the IRS recommends that you save your returns and supporting documents in a labeled envelope for seven years. In the event that you are audited, you may have to provide some of these documents for verification. A number of scams are also prevalent during tax season, especially by phone and e-mail. The goal is often to obtain your bank account information and social security number. To protect your identity and financial information, keep all documents in a safe, secure location, and do not share any information with an unknown source.
Report any suspicious activity with dates, type of activity and information requested, as soon as possible. This information will help investigators locate the source of the activity and help prevent further scams from occurring.
- OBTAIN ACCURATE TAX PREPARATION
The best tax preparation practice is to file as early as possible. You will need to have all documents before you complete your return. For individuals earning less than $55,000, free income tax preparation is available through IRS-certified Volunteer Income Tax Assistance (VITA) sites throughout the country. In the Greater Capital Region, taxpayers may call 2-1-1 for a tax appointment at one of over 20 VITA tax sites. For individuals earning more than $66,000, free online tax preparation is available through the software program My Free Taxes, using the following website sponsored by United Way Worldwide: myfreetaxes.com. More complicated returns may need to be completed by a paid preparer. Compare this year’s tax return with last year’s return to check for accuracy.
- CONSIDER CHANGING YOUR TAX LIABILITY FOR NEXT YEAR
If you received a tax refund this year and were satisfied with the amount, congratulations! If you had to pay federal or state taxes and would rather not pay or pay as much, you may want to consider changing your withholding for the upcoming year. This can easily be done through your employer’s human resources department. The following withholding calculator is helpful in determining how much more you may like to have taken out for federal taxes: https://apps.irs.gov/app/withholdingcalculator/
The following form can be used to change your withholding for New York State taxes for the upcoming year: https://www.tax.ny.gov/pdf/current_forms/it/it2104_fill_in.pdf
In addition, many taxpayers can use health insurance, dependent care or retirement accounts to decrease their taxable income.
Overall, doing taxes can be stressful but with some advance planning, tax preparation can be much easier and actually improve your financial situation for the coming year. Organizing your financial documents, getting accurate tax preparation and planning ahead for next year all contribute to increased financial skills and knowledge and, ultimately, greater financial empowerment.