OK, it’s that time of the year again. Not the tax deadline exactly, but time to start getting your ducks in a row to prepare for tax season.
Why so early? Simply put, the earlier you begin to prepare your tax documentation, the more you are likely to recover from Uncle Sam.
Also, the earlier you plan at the end of 2011, the better placed you’ll be to wear a smile in April.
First, remember that you goal every year should not be to receive a big, fat check from the government, but to get that amount in your paychecks in the previous year.
The better planners among us get nothing, meaning, they’ve been getting their “tax refund” distributed over every paycheck in 2011.
A big refund in 2012 of say, $5,000 means that you just gave the Federal government a large loan during the year.
If your refund is $0, great. Even better is if you have to pay the government. That means they gave you a tax-free loan for a year (not too large though, or penalties kick in!)
To get more in your paycheck, simply increase the number of exemptions in your W-4 for the coming year, to decrease the amount you get back in April, but increase each paycheck in the preceding year.
Documents
Your major task when you begin tax preparation early is to gather all necessary documents. Gather all the necessary invoices and other tax documents you’ll need for your taxes. if you receive paper bank statements, organize them now. Consultants should get their paychecks organized and charitable donations should also be documented.
End of Year Planning
Planning at the end of the year is also crucial to maximize deductions. If you need to bunch your charitable donations into the next year, delay end of year payments until January. If they are to be bunched this year, make payments early to be sure they are registered in December.
The same logic goes for mortgage payments in order to maximize mortgage interest and property tax deductions. Pay them early to maximize taxes this year.
This is also relevant to business expenses. Document all your business expenses and be mindful about which year you want them registered in.
Tax Software
If you use software such as Turbo Tax, you can now preorder your 2011 tax programs. This means you can download them immediately they become available and get started on your taxes.
It’s Not Too Early to Start Preparing for Tax Time
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