Four Year-End Tax Tips
Tax returns for individuals (and tiny businesses who file a Schedule C) aren’t due until April, but as the end of the year approaches, many are preparing their files and financials so that the tax season can flow a little easier. The upcoming tax season is going to be a bit different for many taxpayers, and whether you plan to enlist the services of an expert or do them yourself, there are a few ways you can start getting ready before the new year begins.
Get Your Receipts Together
We’ve all seen or heard about the “boxes of receipts” that clients hold onto to support expenses, and even in the age of everything digital, some things don’t change. Many people keep tens or even hundreds of emails or pdfs to accompany their other tax documents, but the reality is, many couldn’t pick out the appropriate one to match an expense if they tried. I recommend choosing a cloud storage option (i.e. Google Drive, Dropbox, etc) and create folders to categorize the receipts by date (month/year) or expense type (i.e. advertising, office supplies, equipment, etc). Generally you want to do this process as you incur the costs, but the end of the year is the perfect time to gather all of your receipts and classify them in a way that allows you actually find them when you need them.
2. Prepare Formal (or Informal) Financial Statements
Do you know how much you earned and spent this year? And on what? Well… you need to. The first step I often give new clients is to track everything. EVERYTHING. Any money that goes in and out of your business should have a category assigned, since this information will ultimately be included on your 1040 Schedule C. If you have an accounting system, congratulations - this step should be pretty straightforward. But if you don’t, start with a basic spreadsheet, pull out your bank statements, and get to categorizing. Not only will this make your net profit clearer to you (which is the number that you will be taxed on for self-employment), this process might also jog your memory for those items that you might have otherwise forgotten.
3. Save All of Your Tax Documents In One Place
Between the W-2 you receive from your job, your student loan docs that you can download online, and the 1099-MISC that comes in the mail, it’s easy to have all of your tax documents available without knowing where they all stand at one time. But in order to have everything you need in time to prepare your tax return, you want to keep all of your docs together, whether hardcopy or in a digital folder. Some of the items you should have at hand are:
Prior year tax returns
W-2 (if you have an employer) or 1099-MISC (if you freelance)
A 1098 from your mortgage company to reflect interest and other mortgage related expenses
A 1098-T if you had tuition expenses
An interest statement from your student loan company
Documentation of charitable deductions
4. Get help if you need it.
As stated before, this year has changes that may provide challenges to even the most dedicated of DIY tax preparers and that might mean you need assistance. Be sure to reach out in advance to properly interview anyone you might want to use for your tax preparation and filing services. If you would like help from Little Fish, please click here to get started. No matter who you choose, make sure to make your selection in enough time to ask all the questions you need to in order to feel comfortable putting your tax needs in someone else’s hands.