1. Organize your FormsIrrespective of how you earn your money, there are tax forms that you’ll have to deal with. Whether you receive a W-2 form from your employer or you’re a freelancer that reports your earnings with 1099 forms, make sure that all of your documents are in order.
Moreover, this is a great time to look over how much of your income is being withheld and then adjusting accordingly. Even though you’ll receive that money through your tax refund ultimately, you’ll be able to use it more effectively by withdrawing less income initially.
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2. Lower Your Tax BurdenOne of the main benefits of avoiding the tax rush is being able to take proactive steps to lower your tax burden. For many individuals, an effective way of doing so is by contributing to charity before the end of the year. Even if you don’t want to contribute cash to an organization, you can also qualify for a deduction by donating certain goods to charity.
Another helpful way of lowering your tax bill is by contributing to your retirement fund, which is an essential step in planning for your financial future irrespective of the tax benefits. The earlier you start planning for your taxes, the more time you’ll have to exploit deductions to lower your tax burden. If you’re filing at the last minute, you’ll inevitably be overlooking deductions that you could have used to shave a significant amount of money off of your IRS bill.
3. Evade Tax PenaltiesPaying taxes can be frustrating enough as it is, and there’s no reason to pay more than absolutely necessary. A common mistake made while filing taxes is forgetting to list all of your income, which can make you liable to pay steep penalties even if it was an innocent mistake. Make sure that you’ve listed all of your income on the proper forms, because the IRS will find out if you haven’t.
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Moreover, if you haven’t signed up for a health insurance plan for the coming year, you may be liable to pay a steep fine. Don’t make the mistake of heading into the New Year without insurance, since you’ll save a lot of time and energy by signing up in advance.
Bottom line: Organizing your tax forms ahead of time will allow you to capitalize on your deductions and avoid IRS penalties. Don’t leave it for the last moment!