The Trump Administration wants you to believe the new tax laws have simplified the process of completing a tax return. The game has changed and it’s still not a process you’re going to want to go into unprepared. Here are eight things you should do before you start calculating your tax bill.
Review last year’s tax return and see where you had income and deductions. With this list in hand, you’ll be able to make sure you don’t miss anything this year.
Understand the new standard deduction to save yourself some paperwork. The new tax law increases the standard deduction significantly. The IRS estimates the number of taxpayers who will itemize deductions will drop from 30% to 10% under the new rules.
Think about changes in your life during the past year. If you’ve started a new job, had a child, moved to a new house, or had a change in your marital status, you may have some major changes in your tax situation.
Collect all 1099, W2 and other tax statements that you’ve received in the mail. If you have only one employer, this is an easier process. If you have a side hustle, are self-employed or if you freelance, you may have several sources of income. Remember that the amount of income you receive over a calendar year when you are self-employed is ordinarily more than the sum of your 1099’s. Do not omit income – All it takes is $10,000 of unreported income to result in criminal tax exposure if you are subsequently audited. The IRS will consider all deposits to any account you control as income unless you can prove otherwise. For example, borrowed or gifted funds are not income. Don’t start your taxes until you receive all of your tax documents.
Think about any odd situations that apply to your tax return. Do you have a home office? Do you have rental properties? Do you have foreign income? Make sure you have the paperwork ready for all of these items.
Check your retirement savings contributions and maximize them if at all possible. With certain retirement accounts, you have until the tax filing deadline to make a contribution. With others, you must contribute by Dec. 31, however.
Decide how you want to do your taxes for the year. Some people will want to use software to do their taxes on their own. Others will want to take the information to a professional. Whatever you decide, always keep your records stored in a safe place in case of an audit in the future.
Understand the 2017 tax law changes to make sure you don’t break any of the new rules. This is especially important for small business owners. If you have any questions regarding current tax law, consult a tax attorney or reputable CPA. It’s far better to calculate things correctly the first time rather than submitting an incorrect return and needing to subsequently amend which will dramatically increase the odds of a subsequent audit.