Before you think we’re crazy for encouraging you to start prepping for tax season (it’s not even Halloween yet, for Pete’s sake), having spent our fair share of time behind the desk working with people to better manage their finances, we heartily endorse a pro-active approach to taxes. Whether you’re a busy parent who barely looks up between the start of the school and New Years, a freelance contractor with loads of 1099s, or someone who’s planning on making some big life purchases in 2017, it’s good to assess how you’re setting yourself up for financial success months before you take the plunge on that big new expense.
Begin Collecting Important Tax Documents
If you’ve been working with the same employer for years, and receive a W-2 form promptly every January, then congratulations! You won the tax lottery! But if you’re like many Americans who juggle multiple jobs and multiple employers, gathering precious financial documents—or hunting down late payments from your clients—can cause a lot of added stress around tax time. Assuming you have income from multiple sources, the best thing you can do is create a file, whether a digital one on your desktop computer, or a hardcopy filing system under lock and key. Having all your documents in one place will ensure that all your outstanding income (and outgoing expenses, if applicable) are in one, easy-to-find place.
Know Your Tax Bracket—And Make Room for Freelance Tax Rates
The next thing we recommend doing is taking a look at your weekly or monthly income to begin anticipating whether you’ll owe taxes next year, or if you can expect a refund. Knowing your tax rate is crucial to being on top of your taxes, especially if you’re a freelancer who doesn’t typically deduct for common items like healthcare and Social Security. If you’re responsible for your own deductions, it’s best to seek professional financial help so that you know just how much to be squirreling away throughout the year, in order to pay off your tax bill come April 15.
Budgeting for Next Year’s Big Purchases
Once your information is organized, and you’ve figured out whether or not you’ll be owing taxes next year, the next thing to do, when a large purchase—like a car—is looming, is to begin factoring this new expense into your stream of income. Does the car you want fit into your existing budget? If not, is there a more affordable model, or different body type that would work just as well for you? If you’re set on one particular vehicle, are you ready to make the financial sacrifices needed to buy and maintain it?
The worst thing you can do is bank on your current income, and assume that no other large expenditures will rear their head in 2017. Be proactive about your financial situation, and reap the rewards that early tax planning has to offer.
What say you, readers? How do you prepare for tax season? Are you an Organized Opal, or a Nervous Nelly between January and April? Sound off in the comments with your best tax prep tips!