Just because you may have filed a tax return already this year doesn’t mean that you should forget about your taxes until next year. The financial decisions you are making now may affect the tax you owe or the refund you may receive next year. You can also begin preparing now for easier tax filing next year.
Here are some simple year-round tax planning pointers for all taxpayers.
Organize tax records
Organize your tax records by creating a system that keeps all important information together. Taxpayers can use a software program for electronic recordkeeping or store paper documents in clearly labeled folders. You should add tax records to your files as you receive them. For example, medical bills paid, charitable contribution receipts, and other tax-deductible expense receipts can be gathered throughout the year.
Organized records will make tax return preparation easier and may help you discover overlooked deductions or credits. Good recordkeeping is especially important for any taxpayers who are self-employed. If you use your car for business purposes, make sure that you keep track of your business mileage throughout the year. An easy way to do this is by using an app on your smartphone, although some people choose to keep a paper notebook in the car and write down their odometer readings for each trip. For more information about good tax recordkeeping for self-employed individuals, check out these Self-Employed Tax Guides from our partners at MyFreeTaxes.
Identify filing status
It is important to identify a taxpayer’s filing status because it is used to determine their filing requirements, standard deduction, eligibility for certain credits and the correct amount of tax they should pay. If more than one filing status applies to you, you can get help choosing the best one for your tax situation with Interactive Tax Assistant, What Is My Filing Status. Changes in family life — marriage, divorce, birth and death — may affect your tax situation, including filing status and eligibility for certain tax credits and deductions.
Remember: If you are legally married, you are not eligible to file Single. If you live with your spouse but choose to keep your finances separate, you may only be able to file Married Filing Separate (and may be ineligible for various tax credits). Married taxpayers can choose to file jointly and still receive a refund, even if one spouse has a overdue debt to the federal or state government. Learn more about Injured Spouse Relief on the IRS website.
Check withholding
Since federal taxes operate on a pay-as-you-go basis, taxpayers need to pay most of their tax as they earn income. You should check that you’re withholding enough from your pay to cover your taxes owed especially if you owed money on last year’s taxes or your personal or financial situations change during the year. It is the most difficult to get your withholding right if you have multiple jobs during the year.
To check whether your current withholding will likely be enough to cover your taxes owed for this year, you can use the IRS Withholding Estimator. If you want to change the amount of your tax withholding, you should provide your employer with an updated Form W-4. Some employers offer this form to employees electronically, so check with your HR department for the best way to update your information.
Make address and name changes
Make address and name changes by notifying the United States Postal Service, current and previous employers, and the IRS. To officially change a mailing address with the IRS, taxpayers must complete Form 8822, Change of Address, and mail it to the correct address for their area. You can also change your mailing address by phone by calling the IRS at 800-829-1040. It is especially important to update your address with the IRS before the end of December if anyone in your household receives an Identity Protection PIN (IP PIN).
Report any name change to the Social Security Administration. Making these changes as soon as possible will help make filing your tax return easier. The name that you use on your tax return must match the name currently on file with the Social Security Administration. For example, if you have recently gotten married and haven’t yet officially changed your name, continue using your current legal name on your taxes until the change is complete.
Save for retirement
Saving for retirement now can help decrease your taxes or increase your refund next year. If your employer offers a retirement plan, you should consider participating or increasing the amount you currently contribute. If you don’t have a retirement plan available at work, you may be able to reduce your taxes or increase your refund by putting money in an Individual Retirement Account (IRA).
