It’s six weeks until T-Day.
That’s Tax Day for those of you who haven't given much thought to the yearly deadline.
While we're not quite there yet, crunch time is just around the corner — unless you start gathering your materials and making some serious strides today.
To help you break down your to-dos into bite-size action items, we created this handy taxes guide, outlining tasks to consider tackling week by week.
So try saying hello to a more productive and stress-free tax season this year — and goodbye to the procrastinator's panic you won't be feeling come April 14.
Tax To-Do #1: Decide Who Will Prepare Your Return
What’s the Rush? Many tax preparers' calendars start filling up in January — so if you think you'll want professional help, you need to act fast.
Your decision on whether to fly solo or look for help hinges on two things: How complex the process is likely to be, and how comfortable you are with the tax code.
“People with just a W2 income — meaning they’re a traditional employee of one company — and perhaps a few itemized deductions may want to consider purchasing their own tax software,” says Laurie Samay, a client service associate at Palisades Hudson Financial Group, a firm in Scarsdale, New York, specializing in complex tax returns. "That's the baseline for an uncomplicated return."
But if the thought of going it alone makes you sweat, or your situation isn't quite so straightforward — say, you own a business, have rental income or got married this year — you may be better off working with a CPA, Enrolled Agent or tax attorney.
If you don't have someone in mind, Howard Hook, a CPA and financial planner with EKS Associates in Princeton, New Jersey, suggests asking for recommendations from friends or colleagues — provided their tax situation is similar to yours. For example, if you're a freelancer, you'll want to seek referrals from other contract employees.
And if you do decide to hire help, don’t wait to call. “Make your appointment as early as possible, so you can get it on the calendar,” Hook says.
If you’re too late to schedule an appointment, you may be forced to file an extension or else be subject to penalties.
Tax To-Do #2: Gather Your Paperwork
When March 3 to March 15
What’s the Rush? It's important to have all of your relevant documents on hand before you — or a preparer — start completing your tax return. Plus, finishing this process a month ahead of the deadline gives you enough time to request a corrected form, or replace one that's missing.
By now, you should have received all of your tax documents in the mail — but if you aren't sure you have everything you need, Hook recommends looking at a copy of last year's return.
“Make a checklist to ensure you have those documents again this year,” he says, adding that most professionals make this process easy for clients by sending them what's called a Tax Organizer with general questions they need answered.
Here are some items to look for:
- 1099s (a form that states non-wage income)
- Statements from your brokerage accounts
- 1095-B and/or 1095-C (forms that report your health insurance coverage)
- Receipts for charitable contributions, medical expenses or unreimbursed business expenses
The full list can be quite long — especially if you’re paying tuition, repaying student loans, own a business, receive IRA distributions or have significant investments.
So be sure to review whatever list you're working from very carefully.
Tax To-Do #3: Dig In — and Do Your Taxes
When March 15 to April 8
What’s the Rush? If you hit a roadblock or decide to take additional steps to minimize your tax burden, you'll want to have as much cushion room as possible before the filing deadline.
If you’re leaning on a trusted professional to do your taxes, this part is a cinch. But if you’re using software to complete your own forms — or you want to ensure your accountant is hitting all the right notes — here are some potentially important questions to ask.
If you're a single person and discover your deductions equal more than $6,200, then you'll want to list them on your return in order to shave more money off your taxable income.
Should you itemize your deductions? Most taxpayers are eligible to deduct certain expenses — such as sizable charitable donations, medical expenses, and property taxes — but not everyone understands whether it's in their best interest to itemize them.
“Itemizing” means adding up deductible expenses to determine whether the grand total exceeds the government's standard deduction. For 2017 it's $6,350 for singles and $12,700 for married joint filers.
So if you're a single person and discover your deductions equal more than $6,350, you can list them on your return in order to shave more money off your taxable income. If not, you can simply take the standard deduction.
Luckily, this isn't a decision you'll necessary need to make on your own. Either your tax software or your preparer can tell you which method will yield the highest savings after reviewing your information.
Do you qualify for tax credits? While a deduction decreases the amount of your income that's subject to taxes, a credit reduces — dollar for dollar — the amount you owe. So if you claim a $2,000 tax credit, you save $2,000 in taxes.
Common tax credits include the American Opportunity Tax Credit, which gives you up to $2,500 for tuition and other qualified education expenses. There’s also the Child and Dependent Care Credit, which allows you to claim up to $3,000 in child or dependent care expenses for one kid.
Did you buy health insurance on the state exchanges? If you failed to sign up for adequate health insurance coverage last year, you will have to pay a penalty of either 2.5% of your yearly income or a set number per person — whichever is higher.
The penalty applies for each month you weren’t properly insured. So if you went freelance and didn’t get your act together for five months, you’ll pay a prorated portion of the annual amount.
Last year was also the first time that people who qualified for subsidies received an immediate tax credit to lower their out-of-pocket premiums, based on their estimated yearly earnings.
The only problem? Open enrollment ended in February, which means freelancers and business owners could have incorrectly estimated what they'd earn for the year.
“People don't always have a great idea of what their net income will be,” Hook says, adding that income includes interest, dividends, and other unpredictable capital gains. “But if you made more than you thought, and took too large a credit, you’re going to owe money to the government."
On the flip side, if you overestimated your income, you’ll likely get some money back.
Should you make a last-minute retirement contribution? While you can’t put any more money toward a traditional 401(k) for last year, you can make a tax-deductible contribution to an IRA, a self-employed 401(k), or SEP, right up until April 17.
Once you’ve done a first pass on completing your return, you can go back and play with the numbers to determine if an additional investment would yield any savings.
In some cases, if your adjusted gross income is just over the limit for a significant deduction or credit, a bonus retirement contribution could help squeeze you under the line — while padding your nest egg at the same time.
Just don’t forget to note that your investment is meant for tax year 2017, or your money will be credited toward this year's contributions instead.
In 2018 you can contribute as much as $18,500 to your 401(k).
Tax To-Do #4: Get a Jump on 2018 Tax Prep
When April 16
What’s the Rush? The best time to make decisions about next year’s taxes is when you’ve just waded through this year’s paperwork.
We realize you've barely finished celebrating the end of this tax season — but taking care of a few additional housekeeping items now could help make filing your taxes in 2018 a breeze.
Here are three things to consider.
Did you get a huge refund — or owe a ton? If your refund check or tax bill was sky-high, consider adjusting your withholding so you’ll receive the appropriate amount in your paychecks each month.
While it may seem nice to get a fat refund check, you're essentially giving the government an interest-free loan until they pay you back.
The IRS has a withholding calculator to help you readjust — something Samay says you should actually consider doing at any point during the year if you go through a big life change, such as getting married, divorcing, or picking up a second job.
Are you putting enough away for retirement? In 2018 you can contribute as much as $18,500 to your 401(k)—that's an extra $500 compared to 2017.
Yes, it's only April, but consider bumping up your contributions by a few percentage points now, especially if this move helped lower your tax burden this year. Plus, you'll be doing your future self a favor by increasing your retirement balance. It's a win-win.
Are you organized? If this year’s tax prep involved rummaging through stuffed desk drawers and piles of papers, now’s your chance to do a better job next year.
Think about your paperwork categories: Do you save receipts, and designate a folder in a desk drawer or hanging file for them? If not, consider using expense software, such as QuickBooks, to organize them.
Are you supposed to be tracking car mileage for work? Stick a notebook in your glove compartment, and make a note every time you take a trip.
Do you make a lot of online charitable contributions? Create a folder in your email account, and move your digital receipt into it as soon as it arrives.
“It’s better to keep track of things as you go along, rather than having to go back and try to find it,” Hook says. “At the end of the year, you have it all in one place.”