5 Ways to Reduce Tax Stress Next Year

istock_000005363862xsmall.jpgIt’s April and that groaning sound you’re hearing is the collective teeth-gnashing and hair-pulling of families all across America facing what is very likely the most stressful time of the year (outside of Christmas, perhaps) – tax time.

If you have few assets or investments, a simple W-2 job, and no children, tax time can be little more than an inconvenience. But for everyone else, it’s a major headache. Between hunting up long-lost receipts, worrying about what you might owe and the fear of what happens if you do something wrong, preparing your taxes can feel as stressful and fraught with risk as robbing a heavily-guarded bank with an unloaded water pistol.

This close to the deadline, there’s probably not a lot you can do to offset the stress relief for the current year. But if you find yourself filled with dread every time April comes around, here are a few tips that can make it easier next time.

1. Organize your records. This is by far the best and easiest way to prevent tax preparation stress. There’s nothing worse for your peace of mind than realizing at the last minute that you have no idea where to find critical receipts or records.

Once you’re finished with this year’s taxes, go back through and make a note of everything you’re required to hand in, then set up a filing system that accounts for each category or item. (Note: It’s not unusual to be halfway through the tax filing process and realize that you require something you had no idea you’d need, which is why it’s best to do this afterwards rather than before.) Once you’ve got the system set up, go through your receipts, bills, donations and so on every month and file everything away for next year’s taxes. That way you won’t be scrambling through coat pockets and piles of junk mail looking for the necessary paperwork when next April rolls around.

2. Make a savings plan. If you’re self-employed or otherwise pay quarterly withholding, or you think you might end up owing money for any reason, set up a savings plan that lets you build that money up gradually rather than having to come up with it in a lump sum at tax time.

Set up a separate interest-bearing money market or savings account that IS NOT connected to your ATM access (so you can’t easily get at the money). Then figure up what you’ll likely need to pay into it and split that up into whatever sized weekly or monthly payments that works for you. Pay this account like you would a bill, regularly and without fail – this is not an optional expense. It also never hurts to be a bit generous when figuring up how much to put in. That way, you’ll have plenty to cover what you owe and any left over can be considered seed money for an emergency or investment fund. Just roll it over and forget about it, and keep on making your regular payments for next year

3. Make a tax plan. Talk to your tax preparer, or whoever does the taxes in your family, to see if there’s anything you can do this year that will ease your tax burden next year. Look over deductions you qualify for and those you don’t. You may find ways to increase deductions you’re already taking, and create ones that you’re currently not. For example, most people don’t realize that not only can they deduct medical expenses, but also mileage to and from those doctor and pharmacy visits. Don’t forget to keep good records, and file them away in your new organizational system.

4. Let someone else do the dirty work. It may not make much sense to pay for someone else to do your taxes if you fill out a simple E-Z form or have few addenda. But if you have several schedules, forms and other extras involved in your return, it can sometimes be worth it to let a real expert worry about making sure it all gets done and done right.

Having your taxes done by a certified preparer also means they’re guaranteeing the work they do – if you’re audited, they’ll be there to make sure you’re represented, and they’ll take the hit if there were any filing mistakes on their end. In addition, they do thousands of returns a year and chances are good they’ll spot deductions and potential problems you might not have seen. These two issues alone often make prep fees well worth the cost.

5. File early. It may sound counterintuitive – the desire to put off what we don’t want to do is strong – but filing early actually offers you many stress-relieving benefits. For starters, if you wind up owing money, it gives you a bit of breathing room to round up the cash before the payment deadline arrives. And the reality is that your taxes will be no more difficult, expensive or tedious to do today than they will be on April 15th. Your best bet for maximum peace of mind is to start the filing process the minute you have the last document you require in hand (usually your W-2s or 1099s and any investment statements).

Also, if you do file early, you don’t have to worry about last minute delays or forgotten records endangering your on-time filing status. And finally, filing early means that your preparer will also be far less rushed and therefore able to spend more time working with you and be more available for appointments and calls.

Of course, you’ll want to consult a professional for any legal advice you may need regarding your specific situation. And it may be too late to deal a deathblow to tax-time stress this year. (Maybe a massage might be in order, instead – and keep that receipt!) But with a little planning and a bit of foresight, you can make next year’s rite of spring a little less…taxing.

For more tax tips, information and advice, visit the official IRS website at http://www.irs.gov/

Thanks to Entrepreneur’s Breakfast for including this post in the Sunday Brunch Buffet, to Credit Card Lowdown for featuring this in the Carnival of Debt Management, to Bootstrapper for inclusion in the Carnival of Business and Entrepreneurship, to The Skilled Investor for including this in the Carnival of Financial Planning, to Don’t Mess With Taxes for featuring this in the Tax Carnival, to Musings of a Thoughtful Conservative for inclusion in A Waukesha Carnival, and to Working at Home on the Internet for including this in the Working at Home Blog Carnival.

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