It’s February 14th and that’s exactly two months (60 days) until 2018 taxes are due. I’m not sure why this comes as such a shock to many people each year… For there are two certainties in life: death and taxes. The good news is with just a few proactive steps, tackling your taxes is super easy. Here we go:
1: Create a place to store “Important Tax Documents.”
This can be anything from a simple file holder to a bin. The type of receptacle doesn’t make a difference. The most critical thing is that you have an easily discernible place to keep tax documents as they emerge throughout the year.
2: What are “Important Tax Documents”?
While the type of documents you'll need to prepare your taxes varies based on details like whether you're an employee or an independent contractor, whether you bought a piece of property or whether you have student loans, etc., common documents include a W-2 or 1099 (for employment), a 1095 (for health insurance) or a 1098 (if you own a piece of property). Other documents may include those needed for investment income information, if you've sold any stock, received any dividends or have any interest-bearing accounts.
If you own your own business (you're a freelancer, side-hustler or business owner), it’s critical to stay organized all year long for a smooth tax season. This is easy because you now have a designated place (refer to Step 1) to keep track of the receipts for expenses you intend to write-off.
3. How long do I need to keep my tax returns?
According to finance guru Suzi Orman, you must keep three years’ worth of returns and their supporting documents. The IRS has the power to challenge returns for the past six years. So if you own your own business or have several income sources, store six years of files just to be safe.
Just for the record, here’s the official word from the IRS: https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records
4. What can I do if I’m still feeling overwhelmed?
If you have all of your documents stored neatly in one place and you are still feeling panicky about filing your taxes, then I highly recommend hiring a tax professional. For me personally, it’s worth taking my pile of carefully organized tax documents and handing it over to my accountant to file appropriately. While I could pay to take a course and then attempt to file my own taxes, I find it’s a better use of my time and money to hire a professional.
I would love to know how you decide to proceed in tackling your taxes this season. Please share your experiences through comments on this blog. My hope is that this information helps to make the process easier within Baltimore, Maryland and beyond. Cheers!