Like it or not, tax time comes this time of year every year. Do you know what that means? That means it is time for you to start thinking about how you are going to file your tax returns by the April 15, 2021 deadline.
As you contemplate filing your 2020 taxes this year, it would be a good time to also start thinking about your 2021 taxes. This would be the perfect opportunity for you to organize your taxes. Many mistakes are made in haste when you’re in a rush to file taxes.
With an eye on getting ahead of your 2021 taxes, here are five suggestions worthy of your consideration.
1. Start Collecting Tax Documents Now
If you wait until the beginning of next year to start collecting tax documents like business expense receipts, charitable contribution receipts, and mileage records, you might miss something. Every deduction you miss will translate to more taxes you have to pay or a smaller refund you will be putting in your pocket. Starting today, you should start collecting anything that might affect your taxes next year.
2. Check Your Federal Filing Status
At the beginning of each your, you should take a look at your federal filing status. If you have been getting refunds in recent years, you might want to consider increasing your exemptions and putting more money in your pocket during the year. Conversely, you might need to lower your exemptions to help decrease the amount you will owe.
Going through this process matters more if your life has gone through changes like marriage, divorce, or the birth of a child.
3. Do Some Tax Planning
It is not a particularly fun thing to do, but tax planning can bring you great benefits during the year. If you can lay down a good estimate of your tax liability for 2021, you can avoid overpaying or underpaying your taxes. You can also get a feel for what kind of discretionary cash you will have during the year. With knowledge of your discretionary cash, you can make better financial decisions related to investments or taking a vacation.
4. Hire an Accountant
If your financial situation has gotten materially better, there is a good chance your tax responsibilities are going to get more complicated. There might come a point where you need a higher level of expertise to make sure your tax situation is handled properly. If you start looking now for an accountant, you might be able to benefit from their recommendations throughout the year.
5. Make Quarterly Payments
Under certain circumstances, the IRS wants you to make quarterly payments against your potential tax liability for the year. It is a good idea if you are self-employed with a good income. The last thing you want to be doing is filing taxes next year only to discover you have to pay the IRS more than you have in the bank. As long as you follow rules set forth by the IRS, there is an excellent chance you can keep yourself out of debt.
For now, your challenge is to file your tax return for 2020. As you are going through the process, you might begin to see the advantages of planning ahead. If you need a good reason to plan ahead, consider this. In a perfect world, the IRS would like to see everyone file tax returns with no refund or liability. To do that requires finesse and good tax planning.