Cue the sigh of relief: Another tax season has come and gone. Before you kick back and relax, though, take a little moment of self-reflection. Did Tax Day make your stress levels soar?
If the answer is yes, it’s time to brush up on a few key lessons to take with you into the 2017 tax year. We guarantee you’ll be breathing a little easier come next April.
1. Keep track of all your income
Specifically, don’t forget about taxes you’ll need to pay on any income you earn during the year outside of a full-time job. This includes money from freelance work or self-employment, dividends on investments, interest payments, and even gambling winnings. Be sure to track all of this income so that you’re not surprised by a tax bill later.
2. Save all of your paperwork
Make sure you keep careful track of any forms and paperwork necessary to file your taxes. This includes your W-2 or any 1099s, as well as documents from banks, investment firms, and your mortgage company. These forms are usually sent out in February.
More immediately, if you make any contributions to charity, you’ll need the documentation. If you own a small business, you’ll need receipts for all expenses you plan to deduct. If you plan to seek deductions for any unreimbursed medical expenses, you’ll need a bill from your health care provider. All of these are important in order to enter accurate information on your tax return. As you gather them throughout the year, set them aside in a file or box that you keep in a safe place.
3. Deductions and credits are your friends
A credit is a straight reduction in your tax bill. A deduction means you reduce the amount of your income that is taxable. Either way, these tax breaks should not be overlooked.
You can get a tax credit for having a kid. You can get a tax deduction if you pay interest on your mortgage. You can get a tax deduction for charitable donations. There are even deductions and credits for using energy-efficient appliances or driving a hybrid car. The list of possible deductions and tax credits is massive, and…