Here at Lasso, we love featuring financial advisors who really get it, and this week’s article is no different. This piece was co-authored along with Robert Schultz of Rollins Financial Advisors
Did you know that more than 150 million individual tax returns are filed every year with the IRS? With every American adult required to file their taxes annually, it’s one of the few ways that celebrities truly are just like us.
But that doesn’t necessarily mean it’s easy – unfortunately, it’s estimated that about 80% of 2018 filers missed at least one step in the tax filing process. With all the paperwork and technical jargon, it’s easy to get mixed up along the way. Lucky for you, we’ve rounded up some tips to help you prepare your taxes right the first time around.
5 Things to Do Before Filing Your Taxes
Filing taxes isn’t our idea of a good time, either, but that doesn’t mean it’s not important. And since tax season is an annual thing that we’re all legally required to do, you might as well hone your skills now. Not sure where to get started? No worries – check out these top 5 tips for tax filing below.
1. Gather All Your Info
First up on the list: Make sure you have all your information. If you’re not sure where to start, a good idea is to use last year’s return as a guide for what you may need to include this year. Just like Chipotle’s burrito bowls are nothing without the extra guac, your tax return will end up seriously lacking if you don’t include all the necessary ingredients.
Plus, a little mistake on your tax return could end up costing you more than just a burrito – incorrectly reported or missing information can result in a penalty fine and even interest accrued on the money owed.
2. Check Your Retirement Contributions
If you made a contribution to your retirement accounts this year (and you should have!), you’ll definitely want to make note of it.
Some retirement accounts, like Individual Retirement Accounts (IRAs), are tax-deductible and could lower the amount you have to pay this year. In contrast, a Roth IRA contribution is non-deductible, but can create a basis that will come into play in future years.
3. Remember Those Stimmy Checks
For this year, the Economic Impact and Advanced Child Tax Credit payments have been incredibly important – if you’ve received any amount from either, you’ll need to report them. If you’re not sure, keep an eye on your mailbox; the IRS has been sending reminder letters with the total amount you should have received.
If you didn’t receive either form of stimulus payment, make note of that too – it could potentially affect what you owe or how much your refund is, so you want to make sure you get it right when filing your taxes.
4. Make the Most of Your Charitable Contributions
Donating money to charity has a ton of benefits – from those warm and fuzzy feelings to just knowing that you’re making a difference in the world, charity is an all-around great way to give back.
Another reason to call up your favorite foundation? Charitable contributions are actually tax-deductible. Even if you don’t itemize, you can still take a deduction of up to $300 as a single filer or married-but-filing-separately and up to $600 as a joint filer or head of household.
So what are you waiting for? Go change the world!
…and then get that deduction, too.
5. Apply for an Extension, If Necessary
If, for some reason, you’re not able to get your taxes filed by April 18 of this year, you’ll want to make sure to file an extension with the IRA (and your state) to let them know.
An extension gives you more time to file your taxes, but not to actually pay them. Penalties and interest will start accruing on April 18, so make sure you’ve paid in enough to cover your taxes.
On the other hand, if you have the means to file your return but not to pay what you owe, file it anyway. The penalties for not filing are worse than the penalties for not paying.
BONUS TIP: Review Your Work
After finishing your taxes, look back at how you could have changed the outcome in your favor. Ask yourself these questions:
- Could you have withheld more to reduce the amount you must pay?
- Contributed more to your 401(k) via pre-tax contributions to reduce your current taxable income and build your retirement funds?
- Could you have made an IRA or Roth IRA contribution?
- Did you keep up with your charitable contributions?
Whether this tax season was a total slog or easy-breezy, remember to give yourself a pat on the back – nothing’s more #adulting than filing taxes, right?
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Robert Schultz, CFP®, ChFC®, CPWA®, is a partner at Rollins Financial Advisors, a comprehensive financial planning firm based in Atlanta. Rollins Financial helps clients with everything from financial planning to tax advice to retirement prep and beyond.
You can find Robert and connect with him in Lasso!