As the April 15 income tax filing deadline approaches, experts say it’s the ideal time to turn your attention to … next year’s return. The benefits can be both financial and practical. (Tweet This)
Start by considering this year’s outcome, said Barbara Weltman, a tax and business attorney based in Vero Beach, Florida. “Did you get a refund, or did you have to make a payment?” she said. “Make adjustments accordingly.”
In the case of a refund, file a new W-4 with your employer’s payroll department, increasing your number of personal allowances. That keeps more money in your paycheck year-round, nixing that interest-free loan to the government, she said. And if you owed? “Maybe you want more tax withheld, or you need to make estimated tax payments,” said Weltman. That will result in a smaller bill come next April.
Read More The worst states for IRS audits
Get your documents organized. Of the 16 hours the typical Form 1040-filing taxpayer spends preparing his return, according to the IRS, eight are spent on record-keeping. A little prep now could cut that time spent combing through credit card statements and tracking down documents next year.
“Anything tax-related, put it in one folder,” said Tim Gagnon, an assistant academic specialist of accounting at Northeastern University’s D’Amore-McKim School of Business. “People tend to lose them if they don’t stick them all together.”
Try to separate receipts and documents by category, at least, so you can easily tally classifications like medical expenses and charitable contributions, he said. There are also apps such as Shoeboxed and ItsDeductible to track mileage and expenses that could be tax deductible.
Good record-keeping has the added benefit of helping you file earlier next year, increasingly a smart move amid rising tax-refund fraud. “First to file is going to be the one who gets the refund,” said Gagnon. “Second to file is the one with the problem.” It’s not a fail-safe, however, he said—criminals need very little information to file a fake return in your name, and real reform is needed from the IRS and Congress.
Read More Is your state generous with tax refunds?
It’s also worth talking to an accountant or other tax professional if you anticipate a big life change this year, such as getting married or divorced, having a baby, buying or selling a home, or moving across state lines. “It may help you go in the right direction,” said Weltman. Someone getting married, for example, could plan to adjust their tax withholding, while someone readying to sell a home might gauge their eligibility for the tax exclusion on gains from the sale.