Navigating Tax Season – Essential Tips for Individuals and Businesses
During this tax season, the right tools can help make the process easier and less stressful. For example, keeping a detailed log of business expenses throughout the year allows individuals and businesses to maximize deductions while also providing a clear starting point for preparation.
In addition to establishing sound accounting practices, utilizing resources like Odoni Partners can support financial planning and compliance, ensuring a successful, seamless tax filing. Learn more about these and other essential tips for navigating tax season below.
1. Stay Organized
When it comes to tax season, the best way to avoid a stress-inducing boatload of documents is to stay organized. A key part of this is to create a file for any tax documents you receive throughout the year. This can be a physical document folder or a digital one like a spreadsheet or budgeting software program.
Then, whenever you get receipts or other tax-related documentation, place them into this file. You can make this a monthly task, and this will help you feel prepared for tax season rather than going on a wild goose chase for all of the crucial paperwork.
Another great tip is to keep a calendar of important tax dates. This will ensure you don’t forget any filing deadlines that can result in penalties.
2. Be Informed
When it comes to taxes, it pays to be informed. That means keeping up with your state-specific filing requirements, as well as tax credits and deductions you might be eligible for. You’ll also want to consider whether any major life changes have occurred over the past year — like a move, a divorce, or the birth of a child — which can alter your filing status.
If you’re running a business, keep track of your receipts and financial records to accurately determine which deductions are valid. This could be as simple as downloading your business credit card statements or creating a spreadsheet to track annual expenses. When you receive your refund (if applicable), make a plan to spend that money wisely, either by paying down debt, boosting your emergency savings fund, or saving toward a financial milestone, like buying a home.
3. Be Prepared
If you’re a business owner, keep detailed records of your business expenses. Whether it’s from receipts, business credit card statements or bookkeeping software, having all the information at your fingertips will save time at tax filing time and prevent errors that could delay your refund.
If you’re a single taxpayer, be sure you have all the documentation you need before your filing deadline, which is April 15 (unless it falls on a weekend or holiday). Make a list of all your paperwork and if you can, file early and e-file to reduce processing delays. And if you’re expecting to owe money, learn more about tax payment options and filing for an extension. This will prevent late filing penalties and interest charges.
4. Be Flexible
Tax season can be grueling for business owners, especially those who work with clients. Clients often wait until the last minute, there is never enough staff and it feels like you’re working 24/7. This is when burnout looms and it’s essential to take steps to avoid it this year.
The key to minimizing your tax burden is planning ahead. Make sure you’re getting the most out of your deductions by ensuring that all expenses are being properly documented throughout the year. Also, if you’re on the itemize-or-not borderline, consider bunching deductible expenses in one year and deferring income in another.
Finally, it’s important for business owners to remember that tax season is a great opportunity to promote services like financial guidance and investment strategies. This can help you build trust and loyalty with your clients and establish a long-lasting relationship.
5. Take Advantage of Extensions
If you’re unsure that you’ll be able to file your federal tax return by this year’s deadline, it’s worth filing for an extension. Depending on the type of extension you choose, you may not have to pay your tax liability until later.
Keep in mind, however, that a filing extension only gives you more time to file, not more time to pay, so it’s best to estimate the amount you will owe and submit an estimated payment as soon as possible to avoid late-payment penalties.
If you’re self-employed, getting a filing extension also allows more time to contribute to a solo 401(k) or Simplified Employee Pension (SEP) account. However, contributions to these accounts must be made by the original filing deadline, which is this year April 18. Organizing these records now can make it easier and less stressful to do your taxes later.