This is a sponsored post written by me on behalf of Block Advisors. All opinions are 100% mine.
At this point most people have either already filed their taxes or will be filing them soon to meet the April 18th deadline.
One of the reasons I gave in my post 5 Reasons You Should Plan for Taxes Year-Round was that year-round planning makes it easier to take advantage of tax breaks. Another was to avoid owing a huge sum of money.
You may agree with me that year-round tax planning is a good idea, but you may be wondering “what exactly do I do to plan year-round?”
That’s what I want to discuss in this post.
There are a number of things you can do throughout the year to make taxes easier next year.
1) Stay Organized
Unless you are naturally organized you likely have trouble keeping track of your charitable donations, especially when you are donating clothes or household items to a store like Goodwill.
Make it a point this year to keep track of every charitable contribution. If you donate clothes or household goods, take pictures of them and keep track of how many of each item you donate (i.e. 10 t-shirts, 10 plates, etc.) as you will need that information to get the full write-off next year when you are doing taxes.
Besides keeping track of charitable donations, you will also want to keep track of other things such as irregular income, contributions to an IRA, and other things that will impact your taxes.
It’s a huge pain – and sometimes impossible – to track down information when you are preparing taxes next year, so make sure you get started today to make tax time easier next year.
2) Review your Paycheck Regularly
A couple years ago my wife and I had a huge tax bill. One thing we could have done to make this less likely was evaluate our paychecks regularly. If we had done this every couple months we would have quickly realized we were not having enough taken out of our paycheck.
While you may not need to evaluate your paycheck every single month it can be a good idea to review it quarterly. Do some high level analysis on how much money you’ve made and how much has been set aside for taxes. If the amount you have had withheld for taxes isn’t high enough you’ll want to voluntarily have more withheld each paycheck.
Your paycheck reveals a ton of information about your finances and it would be unfortunate to ignore this wealth of information. It doesn’t just show your income and tax information, but also all the things taken out of your paycheck pre-tax and post-tax. All this information is useful for being prepared for taxes next year.
3) Stay on Top of Irregular Income
If you have irregular income or side income through freelancing or some other sort of activity outside of your 9-5, make sure you are setting aside enough money for taxes. After all, it’s easy to forget how much you will owe in taxes for all that side income and no one is forcing you to set aside money.
If you make a considerable amount in side income (i.e. $500+) you’ll want to file quarterly estimated taxes. Quarterly estimated taxes can be very confusing for people who haven’t had to file them before, but they can be lifesavers come tax time. Plus they are sometimes required if you consistently make side income.
Check out my post how to calculate quarterly estimated taxes if you need a good overview of what quarterly estimated taxes are, when they need to be filed, and how to figure out what you should pay in.
One important thing to keep in mind when it comes to irregular income is that you want to keep great records. There will likely be expenses that can be offset with your revenue, but if you don’t keep good records of your expenses you won’t be able to write off any of them. It doesn’t have to be anything special, but even just throwing expenses into a simple Excel spreadsheet with the amount and a note about it will help you when you file taxes next year.
4) Consider Making a Plan with a Tax Advisor
While taxes can be simplified and made into nice little lists like this post, I think it’s important to point out the complexity of the US tax code. Some tax topics are relatively straight-forward: contributing to your 401k is good! But others get more complex.
If you haven’t already, you’ll want to think about talking to one of the tax professionals at Block Advisors. Remember: your odds of saving money on taxes go up the sooner you make a plan and put it in action.
When it comes to taxes we oftentimes feel out of control and at the whim of however our financials roll in over the year. Block Advisors’ tax planning service will show you what immediate changes you can make to control the outcome of your tax situation next year.
How much time and effort do you put towards taxes throughout the year? Do you think more people should focus on taxes year-round?
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Nice article and good read!
I like tip #1. It is very important to stay organize. Keeping all the documents, receipts, and the like. Having a journal or just having a list of these things is also important so that you know everything is accounted for. Like what you’ve said it’s a huge pain and impossible to track down information.
When I did our tax yesterday, I’ve spent no more than 30 minutes. It really helps to have a wife who is really good in organizing and keeping track of everything.
I’ll probably be filing quarterly taxes for my freelance income next year. I keep track of the income by keeping it in a separate Capital One 360 account.
practicalsaver Yes organization is so key. I like to think I’m a pretty organized person, but each year after taxes I try to think of ways to be even more organized next year. The more organized I am, the less painful tax time becomes.
Aliyyah @RichAndHappyBlog Good idea! Each year I try to do a better job of keeping my business income and expenses separate. This year the big change I made was getting a business credit card. I think it’ll really help with both getting rewards as well as keeping things separate for tax purposes.