We previously wrote on Holiday Hacks for 2019 and hope you were paying attention. Now that the shopping season is over, it’s time to tally all of your income, expenses, and much more. We will give you a simple guide for how to prepare for tax season 2020 below.
1. Gather All Documents
You won’t be receiving all of your documents on January 1. However, you can anticipate receiving them and be prepared just in case they never come. One of the most frustrating parts of tax season is never receiving a vital piece of information after you’ve collected everything you believed you needed. Worse still, you may not know how to acquire this missing document. We recommend having spots for all you will need now including but not limited to:
- Last year’s tax return in order to file and confirm information.
- The Social Security number, EIN, or other verification of every business and individual that will appear on your return.
- Your income, your family members’ income, income of every worker, contractor, and anyone who you wrote a check to for their work.
- The receipts for all of your deductible expenses. Those of you who have been using a bookkeeper or using an advanced software will find this step easy.
- The receipts for any and all taxes that have been paid this year including federal and local.
You can ensure that you are fully prepared to file when this list of necessary information is completed. Your bookkeeper or accountant may need additional information.
2. Confirm Your Own Pay
One of the most common reasons for audit is inaccurate pay information. There is an easy way to avoid this. Gather all of your pay stubs either by collecting the hard copies or reviewing your bank account for the deposit records. You can then compare them to the information listed on your W2 (used to report wages), 1099 (miscellaneous income), and W-4 forms (used to report taxes paid). Use this information to compare and confirm that your pay is correct. It is much easier and less expensive for you to go to your employer and resolve any inconsistencies than wait for the IRS to come to you.
3. Organization of Receipts
Sure, you may have all your receipts, but you aren’t done. There are a number of deductions, credits, etc. they can fall under. This includes but is not limited to: work expenses, mortgage payments, property tax, medical bills, charitable contributions, business miles, and many more. It makes sense to keep your receipts organized in order to access them should it become necessary down the line.
4. Invest for Retirement
Those of you with tax-deferred retirement accounts should take advantage of the tax free benefits they come with before the tax year ends. These include accounts such as a 401(k) or an IRA. The more you invest, the less the IRS is able to tax you for. For 2019, those under the age of 50 can add up to $6,000 in an IRA and $19,000 in a 401(k) without being taxed a penny on it. You may continue to contribute and protect your income into these accounts through April 15, 2020. The amounts for next year are going up another $500 for 401(k) accounts with maximum IRA contributions holding at $6,000.
Houston Bookkeeper to Prepare for Tax Season 2020
If you live in the Houston area and need help getting ready for the upcoming tax avalanche, contact us for help sorting out your expenses, income, and any related issues.