Note: Before altering your tax strategy, it’s important to sit down and consult with your tax specialist. They have a firm understanding of your wants and needs, as well as the knowledge of tax law needed to maximize your wealth potential.
With a myriad of changes to federal tax codes in 2018, it is more important than ever to start your tax preparation as early as possible. New restrictions to tax deductions, restructuring of tax bracket amounts, and changes to the standard deduction are just a few of the many factors you’ll need to consider when filing this year.
Getting ahead of the game will not only help you digest these changes and how they will affect your return, but will help you get your taxes filed on time, and filed properly.
Mark Your Calendars
Mark your calendars for Monday, April 15th. This is the date by which you must file your return with the IRS. In addition to the filing deadline, mark your calendar to ensure you receive your annual Wage and Tax Statement, Form W-2. Although the time frame varies, expect to receive either a hard copy or electronic form listing your 2018 taxes and earnings from your employer by the end of January.
Prepare to File as Early as Possible
For those with a complicated 2018 tax situation or those who need more time to digest the multitude of changes in the new tax code, you may file an extension with the IRS by submitting a Form 4868 no later than April 15th to secure an additional six months to submit your 2018 tax return. However, it is often wiser to file your return as early as possible. Filing early offers a wide range of benefits including:
- Avoid paying late fees: Submitting an extension only buys you an additional six months to file your federal return. The extension does not prolong your timeline to pay income taxes you owe. Your full tax bill is still due to the IRS by the April 15th deadline. Not paying your total tax payment by this date can result in a wide range of penalties and late fees.
- Help safeguard against tax-related identity theft: Although identity theft may strike during any time of the year, it is especially prevalent during tax season. Thieves steal your personal information to file your tax return on your behalf, and cash in on any refund you may be owed. The best way to protect yourself? File as soon as possible, and claim your refund early before a scammer can. If, at any point, you suspect you may be a victim of identity theft, contact the Federal Trade Commission to learn more about your recovery options.
- Reduce your tax preparation costs: The closer we get to April 15th, 2019, the more anxious many taxpayers will be to file a return before the deadline. This forces many in-house tax preparation companies and online filing services to increase fees to cover the cost of additional resources and employee overtime.
Start Gathering Your Essential Tax Documents
You’ve marked your calendar with the tax filing deadline, and you plan to file your federal tax return early. Now it’s time to gather all of the documents you’ll need to complete the process.
Set aside a folder (either paper or electronic) to collect your essential tax-related documents as you receive them. Your specific situation may call for some or all of the categories of documents listed below.
- Income-related documents: Includes documents detailing annual income for yourself, as well as a spouse if you file a joint return. These documents include W-2 forms for all taxable income, 1099s listing income from investments, rental properties and more.
- Income adjustments: Certain qualified items such as interest on student loans, contributions to Individual Retirement Accounts/Medical Savings Accounts, credits for energy-efficient upgrades and more help reduce the amount of your taxable income. Once deducted from your total income, these items help determine your Adjusted Gross Income, or AGI.
- Records of the taxes you’ve paid: Be sure to collect documents for taxes you’ve already paid for real estate holdings, vehicle licensing fees, state and local income taxes, etc.
- Itemized deductions: When it comes to tax deductions, you have the option of taking the standard deduction or itemizing your deductions individually to reduce your AGI. New tax laws enacted in 2018 doubled the previous standard deduction amounts to bring them up to $12,000 for single filers or $24,000 for couples. You’ll want to choose the route which offers the most substantial deduction for your situation. However, if you plan to itemize deductions, prepare to collect substantiating documents including receipts for child care payments, education expenses, home mortgage interest paid, charitable donations and more.
If in doubt about which documents apply to your specific situation, consult with a certified professional tax advisor.
File Electronically or Use a Tax Preparation Service?
Once you’ve gathered all of your tax-related documents, it is time to decide whether you wish to file electronically, file a paper form by mail, or use the services of a professional tax preparer. Filing your tax return through one of the many online tax preparation sites is quick and easy, but is often best for those with less complicated tax situations. The IRS even offers a Free File program which allows qualifying taxpayers to prepare and transmit tax returns entirely online.
However, due to a large number of significant recent changes in the tax code, it may be wise for those with more complex financial situations or questions to consult an experienced tax advisor. Be sure to carefully examine the credentials and qualifications of individuals you hire to help complete your tax returns to ensure you receive accurate advice and information.
With just a few preparatory steps under your belt, you’ll be well on your way to filing your 2018 federal tax return on time this year.
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