What’s Most Important to Do Right Now to Prepare for Next Tax Season

Yes, I've talked about this often, but as we are in full swing of the the Christmas Season, making plans with friends and family and trying to wrap up last minute things, tax season is the LAST ITEM most want to think about. However, now is actually the best time to start preparing for next year's tax filing. Taking proactive steps now can save you time, money, and stress later. Whether you're an individual taxpayer, a business owner, or a freelancer, there are several things you can do right now to ensure that you're ready when tax season rolls around.

Here’s a list of the most important actions to take:

1. Organize Your Financial Documents

Before you even think about deductions or credits, take a moment to gather all your financial documents. This includes:

• W-2s from your employer (if you're an employee)
• 1099s if you're a contractor, freelancer, or self-employed
• Bank and investment statements to track interest, dividends, and capital gains
• Receipts for deductible expenses such as medical costs, charitable donations, or business-related expenses
• Mortgage statements if you own a home (for potential deductions on interest and property taxes)
• Any other relevant documents like student loan interest, education-related expenses, or retirement account contributions

By collecting these documents early, you reduce the risk of missing anything important and ensure you don't waste time scrambling in the weeks leading up to the filing deadline.

2. Review Last Year’s Tax Return

It’s always helpful to review your most recent tax return before the next filing season. This will give you a sense of what deductions, credits, and other opportunities you took advantage of previously. It can also help you identify any changes you may need to make to your filing for this year.

For example, did you have any major life events last year—like a move, marriage, or the birth of a child—that might affect your taxes? Did your income change significantly, or did you begin earning income from new sources? Reviewing your prior tax return can also help you spot errors that may have cost you money in the past.

3. Maximize Tax-Advantaged Accounts

Now is the perfect time to review your retirement and other tax-advantaged accounts. Consider:

• Contributing to a 401(k) or IRA: Maximizing your contributions to tax-deferred accounts can lower your taxable income. For 2023, the contribution limits for a 401(k) are $22,500 ($30,000 if you’re 50 or older), and for an IRA, it’s $6,500 ($7,500 if you're 50 or older).
• Health Savings Accounts (HSAs): If you have an HSA, contributing to it before year-end can offer both tax benefits and help with medical costs. You can contribute up to $3,850 for individuals or $7,750 for families in 2023.
• Flexible Spending Accounts (FSAs): If you have an FSA through your employer, check your balance and determine whether you need to use the funds before the year ends. Many FSAs have a “use-it-or-lose-it” policy.

Making contributions to these accounts before the end of the year can help reduce your taxable income and provide you with financial flexibility in the future.

4. Estimate Your 2024 Tax Withholding

Avoid surprises when tax season comes around by reviewing your current tax withholding. Use the IRS withholding calculator to determine if you're having the correct amount of taxes taken out of your paycheck. Adjusting your withholding now can prevent you from owing a large sum when you file, or conversely, it can help you avoid overpaying and receiving a smaller refund than necessary.

Consider whether any life changes (such as marriage, divorce, or additional dependents) could affect your withholding. Updating your W-4 now can save you hassle later.

5. Track Business Expenses and Deductions (if applicable)

If you're self-employed, a freelancer, or a business owner, keeping track of your expenses year-round is essential. Now is a good time to:

• Review your business expenses: Categorize all your receipts, bills, and invoices. Make sure to separate personal and business-related expenses to avoid complications.
• Consider buying equipment or making business purchases: If you're planning any significant purchases for your business, consider doing so before the year ends to take advantage of tax deductions like Section 179, which allows you to deduct the full cost of eligible business equipment purchased in the same year.

Additionally, check whether you’ve made all the contributions you can to retirement plans like a SEP, IRA or a solo 401(k) to reduce taxable income and save for the future.

6. Plan for Charitable Contributions

If charitable giving is part of your tax strategy, now is a good time to start planning your donations. Charitable contributions can be deductible if you itemize, but to qualify, you must keep good records. Plan out your donations before the year ends so you can ensure that the contributions are made on time.

It’s also worth considering other donation options, such as donating appreciated stocks or using a donor-advised fund (DAF), which could provide additional tax advantages.

7. Consult a Tax Professional

Even if you’ve always filed your taxes yourself, it might be worth consulting a tax professional as you prepare for the upcoming season. An experienced tax advisor can help you maximize your deductions, avoid mistakes, and plan for future tax years. If you're self-employed or have a more complex financial situation, professional advice can help ensure you're taking full advantage of all available tax breaks.

8. Set a Budget for Tax Season

Tax season can often come with unexpected costs, especially if you owe money to the IRS. Set aside money throughout the year to cover your tax liability. Having a separate savings account for taxes can make it easier to manage your finances and avoid scrambling to pay your tax bill at the last minute.

Conclusion

While it might feel like tax season is far off, the steps you take now can have a significant impact on your financial health for the year to come. Organizing your financial documents, reviewing past returns, and making contributions to tax-advantaged accounts are all proactive moves that can help you reduce your taxable income and increase your refund. Whether you’re an employee, business owner, or self-employed, acting today can set you up for success come next tax season.

Please call the office at 678-717-9818 and we’ll be more than happy to help you develop a plan for next years tax returns.