Done Filing Taxes? 3 Questions to Simplify Your 2016 Tax Filing
You may be ready to put taxes out of your mind until next April, but taking stock of what worked (and didn’t) in the 2015 tax filing process can help you make improvements you’ll appreciate in tax seasons to come.
Here are a few questions to help you identify your biggest pain points in tax filing, and subtle changes that could make for a smoother tax filing in 2016 and beyond.
- Did I owe more money than expected? Getting hit with an unexpected tax bill can wreak havoc on your finances, particularly if you’re forced to put the debt on a credit card you can’t pay off for several months, or pay additional fees through a tax payment installment plan. Apply these questions to your tax return to spot possible opportunities to avoid owing unexpected tax in the future:
- Did you max out your tax-advantaged retirement contributions? Maxing out employer-sponsored or self-employed retirement plans allowable limits are one of the most beneficial ways to lower your tax bill, and leverage the value of your hard-earned cash through investing. If you didn’t max out your allowable retirement contributions, establish an automatic transfer for the amount you need to invest into your tax advantaged retirement account(s) each month. Breaking your total annual contribution into smaller amounts can ensure that you make the necessary budgeting adjustments that make it easier to reach your maximum contributions going forward. Once you’ve done that, remember that annual contributions to a traditional IRA could also lead to a lower tax bill, depending on your income.
- Did you balance capital gains with losses? If you made a profit from the sale of an investment or property, your tax bill could have been driven higher by capital gains. In the future, strategize how to offset taxable gains before you sell. A person who is in the 28% tax bracket, for example, will pay 28% capital gains on that sale of a stock held for less than one year, compared to 15% on gains from investments held a year or more. Selling losing investments along with a winner can also help minimize your capital gains taxes owed.
- Did you pay enough tax throughout the year? If you owe the government more than 10% of your total tax when you file because you underpaid throughout the year you could have to pay penalties. Mark your calendar for December 2016 to take note of how much you’ve paid in tax so far, compared to what you expect to earn before year-end. If you’ll report more income than you expected when you calculated taxes earlier in the year, you can make a larger estimated payment by January 2016.
- Could I find the information I needed to file easily? If you spent considerable time sorting through paper receipts, email and online banking statements to prepare your tax return, change the game for the 2016 tax year. OneReceipt is a free service that compiles all the receipts housed in your email (you can sync multiple accounts). It also allows you to snap photos of hard copy documents so all your records are in one place. If you want to be hands off about record-keeping, Shoeboxed allows you to stuff your receipts and expense-related paperwork into an prepaid envelope, mail it, and outsource categorizing and documenting the files you need for next year’s taxes, for a small fee.
- Did I spend too much time on data entry? Though TurboTax and H&R Block make the process of filing tax deductions far simpler than going it alone and less expensive than handing off your tax return to an account, it still requires data entry. Tax Act has simplified the process further. Its TaxAct Express app allows you to file taxes from your smartphone, and automatically inputs data information from tax forms like a W-2 once you snap an image of the document and upload it to the secure app.