From Headache to Cakewalk

It’s the time of year when tax filing is on most people’s minds. Maybe you’re relieved to have filed early and to have already put your refund to good use. Maybe you’re currently up to your eyeballs in tax forms, hoping for the best. Or maybe you’re imagining all the cool things you could do with some extra cash as you eagerly await your refund.

Wherever you are in the process, you’re probably in an especially good position to appreciate how preparation – or the lack of it – can make a huge difference in whether filing your taxes is a piece of cake or a giant headache.

If this year has been a headache for you, here are some ways you can prepare to make next year’s experience a whole lot easier on you:

Get organized

Whether most of your documents are still on paper (and still arriving the old fashioned way – via your mail carrier) or whether you’ve managed to go the paperless billing route and have converted past paper files to electronic files, you need dedicated folders in which to organize different documents as they arrive.


Specifically, you need to save and file:

• Investment summaries
• Pay stubs
• Property tax bills
• Records of charitable donations
• Copies of state and local estimated tax payments
• Receipts from medical expenses (including services paid for with your health savings account card), tuition expenses, child care, and business costs like home office space, office supplies, client lunches, and so forth

If you’re like many people and you tend to misplace or lose paper receipts, download a mobile app to scan them and send them to yourself. If you happen to use Outlook or Gmail, you can even play with the settings so that any email containing the words “2018 Tax Documents” will go directly into the folder of the same name.

Learn from last year’s tax experience

If your latest tax return is successfully completed, use it to inform your decisions for filing next year. For example, if you under-withheld taxes this year and now unexpectedly owe the IRS, make sure you make the necessary adjustments this time around to prevent that from happening again.

On the other hand, if you’re receiving a large refund, you’ll want to decrease your exemptions. While big refunds can be exciting, ideally, you want to find the sweet spot of just breaking even with the IRS (unless you’re interested in giving the U.S. Government an interest free loan, which is exactly what has happened when you find yourself with a large tax refund.)

Ideally, the money that was an interest-free loan to the U.S. government should be working for you, which is to say it should be in an interest-generating savings account or other investment vehicle that will earn you money.

If you feel confused about the ideal amount to withhold, you can use the IRS Withholding Calculator (yes, they have that) to plan for next year. Have your most recent pay stub and income tax return on hand. Once you’ve determined what adjustments to make, be sure to communicate this with your company’s HR staff so the changes are put into place.

Keep your eye on the ball of the future

Do you anticipate life changes in the coming year? If so, they’ll affect your filing status.

• Getting married or having a baby? You’ll likely need to adjust your withholdings since married couples who file jointly qualify for a reduced tax rate. And having a baby means you can claim them as a dependent, which also affects your withholdings.

• Buying, refinancing, or selling a House? If you made a profit on the sale of your house, you may have to pay capital gains taxes (or on a more positive note, you might be eligible for a homeowner’s tax credit or other deductions). If you bought or sold any real estate this year, make sure your HUD-1 form goes into that all-important tax file we discussed earlier. After you sell a piece of real estate, it’s always a good idea to talk to an accountant who can likely better foresee potential tax breaks or penalties.

• Investing in education? If you or your kids are attending college, you might qualify for the Hope Scholarship Tax Credit and/or the American Opportunity Tax Credit. If you qualify, you’ll need to document expenses for tuition, books, and any other school-related supplies.

By keeping these things in mind and staying on top of changes that may affect your deductions, come next year, tax time won’t have to be a headache. And filing with E-file can make it even easier. In fact, it might even be a cakewalk.