Tax preparation is a year-round task, not just an April event. This is true whether you’re a so-called regular employee, small business owner, entrepreneur or contractor. Waiting until April and getting caught up in the rush means mistakes are more likely to happen, you and your CPA won’t have enough time to comb through all of your information, and you might get a nasty surprise when you find out how much you owe Uncle Sam. Working with a CPA throughout the year is the best way to plan for maximum benefits and write-offs.
Every situation (and taxpayer) is different, so tax preparation has no one-size-fits-all solution. However, ask a qualified CPA, and many will give the same advice to the majority of taxpayers. Unfortunately, these tips are rarely followed, since taxes seem to go hand in hand with procrastination. Here are some of the best tax prep tips from CPAs, and why you should start following them today:
1. Use a real CPA: It’s tempting to go with one of those pop-up tax shops come April, but many of these workers aren’t actually CPAs. Some of them may have little to no tax training. This is no time to skimp, especially when the hourly rate for many reputable CPAs is actually pretty close to the rate at pop-up shops. Look around, meet with a few local professionals and start building a relationship for the long haul.
2. Don’t pay the IRS more or less than necessary throughout the year: Whether you have taxes directly taken out of your paycheck or you pay quarterly taxes, figure out exactly how much you owe the IRS. Pay too little, and you’ll get slaughtered in April (and may owe a penalty). Pay too much, and you’re essentially giving the IRS a free loan. Find the Goldilocks spot of taxpaying.
3. Save and organize everything just in case: One of the best perks of having a CPA year-round is he or she can tell you exactly what’s a deduction and what’s not. However, it’s always best to play it safe. Save all receipts in both hard copy and in e-form (apps like NeatReceipts, Certify and Shoeboxed make this task easy) that may qualify for a write-off or deduction. Create a spreadsheet separating receipt numbers, where the receipt is, amount and potential category (business travel, green home upgrade, etc.) so you’re not paying a CPA to organize this information for you.
4. Keep a separate account just for tax payments: This is especially beneficial if you pay quarterly taxes, but it can work for everyone. Open a checking or savings account with no fees, no minimum balance and opt out of having a debit card. You can essentially forget about this account, preferably sending auto payments to it, to help you build up a tax payment account or buffer.
5. Work with the IRS (with the help of a pro): Uncle Sam won’t go away just because you ignore his letters. Bear in mind that the IRS will only communicate with you via mail (unless you call them yourself) and just because it may take them a while to get to you doesn’t mean you’re in the clear. If you get audited, are confused by their communication or face any other issue, address it quickly and with the help of a professional.
It may be halfway through the year, and April may seem far away. However, it will creep up quickly. Start building a relationship with local tax professionals now for your annual tax preparation.