How to Prepare for Tax Season

Tax season is fast approaching, and so is the dread that goes along with it. While the tax code may seem like an endless collection of complicated regulations, lengthy forms, and confusing deadline, getting through tax season can actually be quite easy. All you need to do is carefully and methodically tackle each step of the process before moving on to the next step.

Gather Your Documents

While you can start planning for tax season in December or January, you won’t be able to come up with more than a rough estimate until February. This is because employers have until January 31st to issue the forms that state your final income — W-2s for salaried employees and 1099s for independent contractors. Until then, you may want to start gathering your receipts for charitable donations, business expenses, and any other deductions you plan to claim.

Sign up for Health Coverage

Whether you like the Affordable Care Act or not, 2014 is the year it starts affecting your taxes. If you don’t have health coverage in 2014, you will be faced with a tax penalty. While this doesn’t affect your 2013 taxes, eligibility for subsidies is based on your 2013 income, and the enrollment period occurs during tax season. If you aren’t already on your employer’s plan, you have until March 31st to sign up for health coverage.

Make Sure You’re Paying Enough

The IRS generally imposes a penalty if you owe more than $1,000 in taxes when you file your return. This usually isn’t a problem for salaried employees, who generally have their withholding set to high. If you are self-employed, have a small business, or have some other source of side income, you may need to pay estimated taxes to avoid a penalty. It’s too late for 2013, but find out if you’re paying enough now because the first estimated tax deadline for 2014 is April 15th.

File on Time

Filing your taxes late can bring substantial penalties and interest charges. No matter how busy you are, make sure your tax return is in the mail by April 15th (March 17th for corporations) or you request the automatic six month extension. The deadline to pay your taxes is the same. If you’re unable to pay them in full, don’t delay filing — you’ll still be charged interest, but the late filing penalty won’t apply. Note: The six month filing extension does not extend the time you have to pay and any payments made after April 15th may be subject to interest even if you had a filing extension.