Preparing for Tax Season: What You Need to Do in January
Tax season is just around the corner, and January is the perfect time to get a head start. By organizing your finances early, you can reduce stress, maximize your deductions, and ensure a smooth filing process. Here are the key steps to take this month to prepare for tax season.
1. Gather Your Financial Documents
Start collecting the documents you’ll need to file your taxes. These may include:
W-2 forms from employers
1099 forms for freelance income, interest, dividends, or other earnings
Mortgage interest statements
Property tax receipts
Charitable donation receipts
Investment account statements
Student loan interest statements (Form 1098-E) Having these documents organized in one place will make tax preparation much easier.
2. Review Last Year’s Tax Return
Take time to review your previous year’s tax return. This can serve as a useful reference for identifying potential deductions, credits, and any carryover amounts, such as capital losses or unused deductions.
3. Organize Your Expenses and Deductions
If you’re planning to itemize deductions, gather receipts and records for expenses such as:
Medical expenses
State and local taxes paid
Charitable contributions
Home office expenses (if applicable)
Business-related expenses Organizing these early will help ensure you don’t miss any potential tax savings.
4. Track Estimated Tax Payments
If you’re self-employed or make estimated tax payments, review the payments you’ve made throughout the year. The final estimated tax payment for the prior year is typically due in January, so make sure you meet the deadline to avoid penalties.
5. Update Your Personal Information
Ensure your personal information is current, especially if you’ve experienced life changes such as marriage, divorce, or having a child. Update your filing status and verify that your Social Security number and dependent information are accurate to avoid processing delays.
6. Understand Tax Law Changes
Familiarize yourself with any new tax laws or changes that may affect your return. For example, updates to standard deduction amounts, child tax credits, or retirement account contribution limits could impact your filing. A tax professional can help you understand these changes and how they apply to your situation.
7. Choose How You’ll File
Decide whether you’ll prepare your taxes yourself using software or hire a professional. If you’re using a tax professional, schedule an appointment early, as tax season is their busiest time. If you’re filing yourself, make sure you have the software or tools you need.
8. Create a Tax Season Checklist
Develop a checklist of tasks to ensure nothing is overlooked. Include deadlines, forms needed, and specific actions like verifying estimated tax payments or submitting necessary documents to your tax preparer.
Final Thoughts
Preparing for tax season ahead of time can save you time and frustration later. While we recommend preparing before the year is over, January is the next best thing. By gathering documents, staying informed about tax law changes, and getting organized, you’ll be well-equipped to file your taxes accurately and on time (or prepare to file for an extension).
