Finances

How to prepare for tax time

Although some are ready to say their fond farewells to 2013, thought needs to be given to the 12 months that just passed as tax-filing season approaches.

Tax season is a few months away, but it's never too soon to begin preparations for filing income taxes. Some people prefer to toast the new year and then arrange appointments with their accountants, while others use the new year as an opportunity to get organized and start compiling paperwork and tax questions. Preparing for tax time at the dawn of a new year can make the process go more smoothly in the months ahead. Here are some tips on how to prepare for the upcoming tax season.

* Start a documents folder. Employers, charitable organizations, banks and other financial institutions begin mailing out tax forms from the previous year in early January. Individuals should keep their eyes open for any mail that appears to be tax-related. Store these documents in a folder that can protect any sensitive information. Such folders also make information more accessible as more and more documents arrive in the mail.

* Begin collecting receipts and itemizing expenses. Many expenses are tax-deductible. These can include education costs, moving expenses, home improvements, medical expenses, charitable donations and childcare costs. Store receipts and other documentation, including canceled checks, with the other tax documents. These will come in handy should an audit ever be ordered.

* Create a spreadsheet of important information. It is handy to have all financial information at the ready. Some accountants will lower their fees if people do some of the filing preparation work themselves. This can include creating a profit/loss statement on investments, or working up a tally of charitable donations. Make an itemized list of all pertinent information so it will be handy when tax-filing time arrives.

* Decide on a filing option. Technology has made filing taxes much easier. Tax preparation software is available for those who choose to file their taxes themselves. There also are walk-in centers that will prepare tax-filing documents. Individuals also can visit a certified public accountant. Whatever method taxpayers choose, allow for ample time to gather information and get the taxes filed by the deadline. Leave some wiggle room in case one filing method doesn't work out.

* Start saving money. Although the goal is to get a refund each and every year, taxpayers sometimes owe money, which can be troublesome for men and women whose budgets are stretched thin already. Those who owed money in the past should begin saving money for tax expenses as early as possible.

* Develop a good filing system. Many financial professionals will advise people to keep financial records for 7 years. Any tax documents should be kept together should they need to be referenced or if an audit is ordered. Designate a filing cabinet or a box specifically for tax documents.

Tax filing season is right around the corner, and the dawn of a new year is a great time for men and women to start gathering documents and preparing their returns.