Thursday, January 26, 2017

January Tax-Preparation Tips for Early Birds

FROM http://money.usnews.com/

Forget worms. When it comes to taxes, the early bird gets the largest refund (and the least stress).
While it's tempting to procrastinate when it comes to filing your taxes, January is actually an ideal time to get a jump-start on the process, experts say. "History would suggest that the closer you get to the filing deadline, the more rushed you feel – [there's] more pressure and more potential for errors," says Glenn Brown, a senior tax research analyst of The Tax Institute at H&R Block in Kansas City. "If you want to maximize your return, you should file early."
Consider taking these steps in January to get a head start on your taxes.
Decide how you'll file. Take the start of the year to decide how you'll file your taxes. Are you going to submit your tax forms electronically? Will you meet with a tax professional? "At least you know your course of action," says Barbara Weltman, an attorney and contributor to "J.K. Lasser's Your Income Tax 2017: For Preparing Your 2016 Tax Returns."
Take note of what's changed this year, says Jon Ulin, certified financial planner and managing principal of Ulin and Co. Wealth Management in Boca Raton, Florida. Did you buy or sell a house? Have a kid? Get married? Change bank accounts? Get an early look at what these milestones will mean for your taxes this year before the early-April crunch.
Call your tax preparer. If you're choosing to enlist help from a tax professional, schedule your appointment early, experts say. "Don't wait," Weltman says. "Professionals get busy."
Wait until late March or early April and your tax preparer's calendar may be booked. Scheduling early will also buy you time if you need to schedule a follow-up meeting after you, say, show up without all the necessary paperwork.
Organize your paperwork. Take the relative calm of the first month of the year to get your paperwork in order, experts say.
Gather receipts, proof of charitable contributions and other tax forms in one place. Check your mailbox every day for essential forms. If you're missing something that should have already arrived, use this time to reach out to the organization. Weltman recommends keeping everything in a single three-ring binder for easy access during filing season.
Boost your contributions. Eligible filers who submit their tax return early enough can use their refund to further reduce the previous year's taxes. "You can make an IRA or health savings account contribution for 2016 up to the due date for the 2016 return, which is April 18," Weltman says. "You have to file early enough or else the refund won’t come back in time."
This is a savvy move, for example, for qualifying filers who haven't reached their IRA limit of $5,500 (or $6,500 for investors who are 50 or older). "If you get your refund early enough, and you can input some cash into an IRA before the filing deadline, that does give you the ability to stretch out your investment there," Brown says. The amount you'll save depends on your income tax rate. For example, an eligible filer in the 25 percent bracket who invests $5,500 in an IRA for 2016 will reduce their tax bill by $1,375.
Make sure to tell the account custodian the year in which you plan to apply your refund, Weltman says. If you skip that step, he or she may earmark it for your 2017 contributions instead.
Take note: The Internal Revenue Service won't issue refunds for filers who claim the Earned Income Tax Credit or the Additional Child Tax Credit until Feb. 15, 2017 (and the refund won't land in bank accounts until the week of Feb. 27). Still, the earlier you file, the more time you have to cash in on this strategy.
Think ahead. Taking care of 2016 taxes early will give you the time to start thinking about how you'll tackle your 2017 taxes. You can use the first quarter to harvest tax losses, prepare your return for other uses, like applying for a mortgage, or adjust your withholding.
Says Weltman: "The sooner you get started, the less pressure or anxiety you'll feel."