7 Tips to Reduce Tax Stress Next Year

Are you still reeling from that all-nighter you pulled trying to get your taxes in by the deadline? Still decompressing after searching through every file on your computer, and every piece of paper in your house, trying to find that darned 1098-E student loan interest form?

We feel your pain.

After all, one of the reasons we started E-file.com was to try and help taxpayers make it easier to file your taxes and get on with your life.

With that in mind, here’s a checklist of what you can do to make filing your taxes easier next year, and hopefully avoid another exhausting April night.

1. Start keeping orderly records now.

We know, staying organized is easier said than done. Sometimes, you don’t have time to stick that receipt in your “Taxes” folder and it spends the night on your kitchen table.

But taking a minute or two to put all your financial information in one, easy-to-find place now will save you hours come next April.

If you’re self-employed or bring in 1099 income, consider using an online expenses tracker. There are plenty to choose from, and they’ll work on your mobile device too so you can track your expenses immediately, as you accrue them. That way, you’ll have everything you need ready to go electronically when it’s time to file.

It’s also a good idea to keep some sort of file for paper copies of your tax returns and any tax-related forms. While keeping electronic records is important, resist the temptation to shred all your paper tax returns.

In most cases the IRS wants you to hang onto your returns and the paperwork behind them for three years. That happens to be the same window you’d have for filing an amended return or claiming a refund, so it lines up nicely.

However, that three-year rule has a few important exceptions. Underreport your income by a wide margin, meaning more than 25% of what you put on the return, and the agency gets six years to come back at you. Worthless securities and bad debt deductions push it out to seven. And there’s no cutoff at all on a year you never filed, or on a return that turns out to be fraudulent.

Own a home?

You’ll want to hold onto anything tied to the property until the limitations period runs out on the year you sell. That paperwork is what proves your basis, and without it the gain calculation gets messy.

2. Check your withholding before the year gets away from you.

Nobody enjoys an April surprise, and when one shows up it almost always traces back to the same thing. Not enough tax came out during the year. The good news is you can start fixing that right away rather than waiting until December to scramble.

If you are a W-2 employee, file an updated Form W-4 with your employer. The IRS Tax Withholding Estimator will tell you what to put on it. Anything that changed your situation is worth a check: marriage, divorce, a new child, a second job, or a spouse who started or stopped working.

Over-withholding may sound like the safer alternative, but it can still cost you. A big refund just means you loaned the government money for a year without collecting any interest on it.

3. Automate what you set aside for 1099 income.

If you are self-employed, nobody is withholding anything for you, so both the quarterly payments and the cash to cover them land on you.

If you automate your tax savings as a 1099 worker, use a fixed percentage of your revenue rather than a dollar amount. That way you capture the appropriate amount of tax as your income fluctuates. Send it to a separate account, too, because tax dollars sitting in your operating cash always look more spendable than they really are.

Here is an important tip to help protect you from an underpayment penalty. You generally avoid one by paying either 90% of what you owe this year or 100% of what you owed last year, whichever is smaller. Higher-income filers use 110% of last year instead. Either way, last year’s return already gives you the number.

4. Make your contributions during the year, not at the deadline.

Contributing to a traditional IRA lowers your taxable income, and there’s a nice wrinkle attached to it. You actually have until the April filing deadline to make a contribution count toward the prior year. Plenty of folks lean on that window when a bill catches them off guard.

Doing it earlier helps on both ends, though. Your money gets more time to grow, and you are not hunting around in April for a lump sum. The same idea applies to an HSA if you are on a high-deductible health plan. Your 401(k) works differently, since those contributions have to happen by December 31 and there is no catching up once the year closes.

One caution on traditional IRAs. They are tax-deferred, not tax-free. You will owe the tax eventually, just later, when you pull the money out in retirement. A Roth runs the other direction, so it will not help this year’s bill but your withdrawals come out tax-free down the road.

5. Gather all the paperwork and files you need before you start.

One surefire way to make the tax filing process even more frustrating is to have to keep stopping so you can go search for a form you didn’t think you needed.

The best thing to do is to gather all your paperwork in one place ahead of time. If you’ve stayed organized throughout the year, you should have most of what you need, but other forms, like interest statements, may trickle in throughout the first couple months of the year.

Take the time to gather your paperwork and locate any electronic files on your computer before you sit down to start filing. You can even let it sit on your desk for a week, if that’s what you need to do. The important thing is that you have all the information at your fingertips.

Filing before everything arrives creates its own problem. Institutions sometimes send corrected forms weeks after the originals, and a correction that shows up after you file means amending your return.

6. Start early and try to finish in one go.

Remember that paper in college that you started and finished the night before it was due? Probably wasn’t your best work, right?

The same is true of your taxes. Starting your tax filing the day before the deadline is an easy way to make mistakes, forget to report income, or miss an important deduction that could save you serious money.

If you can, file once you’ve received all what you need: your wage and income forms, student loan interest reports, mortgage interest forms, and so on. It’s easiest to do the whole thing in one go, but if you can’t, starting early at least means that you’ll have time to finish up without being rushed.

7. Use E-file.com.

If you didn’t use E-file.com last year, try us out this year. We’ve created a program that can walk you through filing your taxes quickly, easily, and accurately. If you have a question along the way, our support staff can help. Filing electronically is faster than filing forms through the mail, and it’s also less expensive than working with a tax professional. Find out more about how electronic filing works here.

Note: Tax laws may change with little notice. We do our best to keep this information current, but it is provided on an “AS IS” basis. It should not be considered, legal, financial, or other professional guidance. For more, see our terms.