Just a heads up, this post is sponsored by the fine folks at Block Advisors. This should go without saying, but all opinions are our own and came straight from our own noggins.
It’s been over six years since we graduated from college (what?!), but there are still a few poignant memories that I’m always reminded of whenever we’re near our alma mater. One is the sucker-punched feeling I always got when purchasing $900 worth of text books for the semester. Dude, that was so much money as a college student. I mean, it’s STILL a lot of money. But $900 to a poor college student is like dropping $50k on a bunch of books I barely opened anyway. Another was the frenzied feeling I got cramming all night for a marathon of final exams and essays, drinking so many energy drinks to stay awake that my hand vibrated as I scribbled down answers. And then as soon as I stepped foot outside of the classroom, all of that temporary knowledge I worked so hard to retain was abruptly flushed from my brain like an airplane toilet.
Preparing for taxes can feel a lot like cramming for a test. You recklessly seek out receipts, documents, W-2 forms, and investment information so that you can write down whatever the tax return paperwork asks of you. Once you can call it good, the envelope is chucked into the mail on April 15th and all you can do is sit back and hope for a decent return (and avoiding an audit). The information you could have absorbed to begin preparing next year’s taxes has already flushed away.
As budgeters with a personal finance site, we’d be remiss if we didn’t preach approaching taxes with the same planning mentality as budgeting. Taxes don’t have to feel like cramming for an exam. Just like following a study schedule helps alleviate stress on test day, planning throughout the year for tax day not only takes away the stomach ulcer, but it also forces you to look at your finances on a regular basis and set incremental goals along the way.
Preparing for your taxes each year shouldn’t be a crap shoot. It’s wise to take the tax-bull by the horns and become as well-acquainted with your tax situation as possible. Here are some things to consider when planning for tax day:
- Look at all the available methods to reduce taxes for the coming year and figure out what you should start planning for now. Talk to your HR rep about tax-saving vehicles such as health savings accounts, 401k investments, and other ways to maximize your hard-earned dollar. They’ll probably enjoy talking to a colleague about something other than how to file formal complaints against coworkers.
- If you’re self-employed, have a savings account dedicated to your expected taxes and contribute at least quarterly (if you’re not already required to file your quarterly estimated taxes). That way, you’re not slammed with a huge tax bill at the end of the year that sends your finances into chaos. It’s also a good idea to keep that IRA regularly funded throughout the year.
- Reach out to a tax professional for access to tax prep questions year-round. The pros at Block Advisors offer a wealth of knowledge and will walk you through the day-to-day, month-to-month tax preparation steps your individual situation requires.
- If you’re going to go the route of using a professional tax preparer like Block Advisors, don’t just blindly shove your paperwork across the desk. Stay involved and ask lots of questions. Think of it as a one-on-one tutoring session with an expert that will help you stay in a financial-planning mentality all year long.
- If you find yourself in the fetal position every April wondering if you’ll owe anything, it may be a good idea to simplify by claiming zero exemptions. We do this for two reasons: 1. It’s nice knowing that we’ll not only not owe Uncle Sam any dough, but that we’ll also get a nice refund back. and 2. We tend to use our refund more responsibly for savings goals or retirement investing than getting that extra money disbursed over 24 paychecks.
- It’s a good idea to figure out a system of organizing your receipts and other important financial documents. Here’s the system we use as a good starting point to figure out what works for you.
While this time of year is a farewell to tax season, it doesn’t mean you should hibernate until next April to get the tax preparation rolling. Keep tax prep in the forefront of your mind as a part of your regularly scheduled financial planning and budgeting.