by Dan Caplinger | March 4, 2019
Tax season has officially begun, and even though you have until mid-April to get your tax return prepared and filed, it's important to get an early start on your tax preparation in order to make sure you pay as little in taxes as possible. A lot of people simply wait until they get all the information they need and then just dive into completing their returns -- only to find out that if they'd done some prep work with their personal finances, things would've gone a lot easier.
With that in mind, below you'll find a few ideas on ways to prepare your personal finances so that you're truly ready for the 2019 tax season. Follow them, and you should find it easier to get your taxes prepared efficiently and accurately.
If you plan to take tax deductions, you'll want to prove that you actually spent the money to substantiate your deduction. That'll require going through your bank account records, and more often than not, the accounts that are most likely to include deductible expenses are either your primary checking account or a money market account that has check-writing capabilities.
Some banks offer the ability to pull up a year-end summary of all your expenses, even sometimes letting you break down those payments into various categories. That can dramatically simplify your tax preparation, so be sure to contact your bank and see if it gives you the capability to do that kind of financial analysis on your yearly expenses.
Similarly, it's easier than ever to use a credit card to make donations or pay for deductible expenses. If your bank account doesn't have a given item that you remember, then it's worth looking at your credit card statements to see if you can find it there.
The advantage of using credit cards to pay for deductible expenses is that you can often get a reward in the form of cash back, airline miles, or other financial incentives. In addition, credit card companies are also able to provide year-end summaries that break down spending by category, giving some easy organization to your year-end financial planning.
Finally, if you have investments, then it makes sense to get all your year-end account statements and other documentation together in a single place. It's true that you should get all the information that goes directly on your tax return in a 1099 form from the financial institution that handles your investments. However, it can be easier to understand what's going on from looking at a regular statement than by poring through an official tax form.
In particular, you'll want to make sure you accurately reflect all the income that your investments generate, as well as any purchases and sales of investments that you made during the course of the year. Those numbers feed directly onto the schedules that include your interest, dividends, and capital gains, and the IRS will want to compare your numbers against the figures it has to make sure you didn't leave anything out. Having the paper trail ready to go makes your tax prep a lot easier to get done.
If it turns out you owe taxes, you'll want to do what you can to get the money together to pay them by mid-April. Even if you can't, be sure to file anyway -- the penalties for failing to file are 10 times worse than the penalties for paying late.
Taxes aren't much fun, but it's a lot easier to get your return done if you've done some prep work with your personal financial information first. Follow the tips described above, and you'll be in a much better position to get your taxes done quickly and correctly.
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