Tax season can be challenging, especially if one is not financially prepared. While it may seem tedious, preparing beforehand can save time from last-minute hassles and help optimize tax returns. Therefore, adopting certain financial habits before the onset of tax season may help lighten the tax season’s load.
1. Regular expense monitoring—The first habit to work toward is consistently tracking expenses. This habit can help manage one’s finances more effectively by providing a clear picture of where money is going, which is crucial when filing taxes.
2. Documenting deductibles—Numerous expenses, from business expenses to medical bills, can qualify as tax deductions. Creating a habit of documenting these deductibles throughout the year can help one keep track of potential tax breaks during tax season.
3. Maintaining a consistent filing system—Organizing financial documents may help reduce tax filing stress. Implement a consistent filing system to quickly locate receipts, bank statements, pay stubs, or other documentation when needed.
4. Saving for retirement— Contributions to pretax retirement savings accounts such as a 401(k) or IRA can significantly help manage one’s taxable income. Remember, catch-up contributions after age 50 to help maximize tax and retirement savings.
5. Regular withholding check-ups—Review payroll withholding to help avoid overpaying or underpaying taxes. Adjustments can be made mid-year based on changes, such as marriage, the birth of a child, or a change in employment status.
6. Early tax planning— Instead of waiting until tax season to start planning, make it a habit to start early. Tax planning provides time to evaluate and implement strategies for minimizing tax liabilities throughout the year.
7. Utilize tax-advantaged accounts—Contributions to Health Savings Accounts (HSAs) and Education Savings Accounts (ESAs) are often tax-deductible and can help lower one’s overall tax bill.
8. Seek professional help—Taxes can be complex, so seeking professional guidance may be appropriate. Consult with a financial professional, a tax advisor, or a certified public accountant (CPA) to understand potential changes in tax laws and how they may impact your financial situation.
In conclusion, preparation is key to financial management. It can help prepare for tax season and work toward better financial health throughout the year.
