Remember last month when I admitted that I like preparing my taxes? That’s how I spent a recent frigid-but-sunny weekend. Surrounded by forms, logged into TaxAct, it was time to jump headfirst into the illogically complex, headache-inducing activity that is tax filing in the land of 70,000-plus pages of tax code.
I knew Uncle Sam was going to come out ahead this year. So why was I compelled to file promptly when I procrastinate in so many other areas of life?
Because tax time presents a telling picture of my household’s money situation.
Some of the financial intelligence I’m happy to have. For example, it’s nice to see that we upped our retirement savings last year, reducing our tax burden and adding a nice chunk to our nest egg without feeling too much of a pinch.
Not so nice? To see how much of the income earned from side gigs goes to taxes. Does it even make financial sense to write this column about making sense of finance? (Never fear, the answer is ‘‘yes.’’)
Another reason to prepare sooner rather than later is that if a tax bill is in our future, an early reckoning offers more time to find the means to satisfy the IRS. It also eliminates the game of “can we or can’t we” that plagues our spending conversations between New Year’s and tax season. Can we redo the kitchen? Pay off that student loan? Maybe not this year.
Taxes are unique for every household. But there are a few things that dawned on me along the way that might be of use to you.
Time to get organized. Really. Our tax situation isn’t terribly complicated. And with software improvements and nearly two decades of tax returns under my belt, it’s a relatively painless task. The worst of it? My chronic lack of organization. Scouring old credit card statements for deductible business expenses. Pawing through a poorly organized folder separating trash from tax forms. Squinting at records of Goodwill donations scribbled on the backs of envelopes. There’s an easier way.
For one, designate a single credit card for business expenses, suggests Todd Koch, a certified public accountant whom I can always count on for common-sense strategies for tax sanity.
To make charitable giving simpler, streamline your process by donating more to fewer charities, using a site such as GiveMN or donating to United Way or other organizations through payroll deduction, if available. As for tracking gifts of charitable goods, you have to ask yourself if your sanity is worth a few bucks. I need to decide: Will I be better organized, perhaps with the help of a free program like TurboTax’s It’s Deductible? Or will I be OK with a few donations slipping through the cracks?
Take time for the what-ifs. I’m obsessed with the tally on the right hand of the screen. Type in a number, your tax bill goes up. Eliminate a job and your tax refund skyrockets. I always use tax software’s calculation capabilities to play around with alternate scenarios, something Koch, a partner with John A. Knutson and Co. in Falcon Heights, says pros do too.
I know, the urge is to finish your taxes as soon as humanly possible. Even I don’t want to drag out the process. But recognizing the interplay of income, deductions and credits can help you make more informed decisions about investments of time and money.
Save yourself some trouble. Every year I have to look up what amount of a car tab renewal is tax-deductible. And I have to waste time looking up whether my donation to one museum or another is fully deductible or reduced by the value of certain perks. Jotting down the answers to these annually irritating questions would save me the hassle. Funny thing is, I recognized my folly mid-tax prep and still didn’t take notes. Old habits die hard.
It’s the big picture, stupid. How many times have you heard someone say they have a mortgage for the tax break?