5 Simple Steps to Prepare for Next Year’s Income Taxes

February 27, 2023

With recent memories of this year’s tax season fresh on your mind, now is the perfect time to consider strategies and actions to make next year as painless as possible for you, your tax preparer, and your bank account. Merit has prepared five simple steps to prepare for next year’s taxes.

#1 Assess Your Latest Effort

Did you have all your records at your fingertips? Did you have to hunt for W-2s or ask employers for second copies? Were your deductible expenses in a file where you could easily find and transport them to your tax preparer? Did you have to make two trips to the preparer’s office because you found more items needed after the first trip? Make a list of the good, the bad and the “needs improvement” aspects of this year’s process and take action to ensure a more efficient process in the future.

#2 Communicate with Your Tax Preparer Early On

Ask your tax professional for advice and suggestions now while they have time to consider your situation without the crushing pressure of clients waiting on returns. If you are aware of upcoming changes or unpredictable situations occurring this year, explain them now. Changes to consider discussing could include new children, divorce, a death in the family, an income change or unpredictable income, retirement of one or more earners in the household, a household member taking Social Security or a pension, and inheritances. They will appreciate the questions now.

#3 Adjust Your Withholding or Estimated Payments

  • There are three reasons you might need to adjust your withholdings:
  • Your refund was large.
  • Your tax payment was large.
  • You have changes in your situation this year.

While it is common to be gleeful about a refund check, you just gave the government an interest-free loan on the money you could have been using elsewhere. If you work for someone else and your pay is relatively consistent, the solution is simple: adjust your withholding rate. If someone in the household is self-employed and makes quarterly estimated payments, adjust those up or down as appropriate. If there are changes on the horizon that are unpredictable in scope, your tax preparer can suggest strategies to mitigate the effects. Your accountant can help prepare a strategy to increase withholding or estimated quarterly payments that would at least avoid penalties. If it happens, you have to pay more; at least you will be paying only for what you legitimately owe without penalties tacked on.

#4 Organize

We recommend taking some time now to establish a system for filing your records. It will pay off in more time saved and much less stress at tax time. Review the documents you needed for tax preparation this year and ask your tax preparer if they have a checklist available to plan for next year.

#5 The Bottom Line

The steps listed above are suggestions with one goal in mind: to have your tax documents prepared in a less-stressful environment, which, in turn, should produce an accurate tax return reflecting exactly what you owe, but not a penny more. Remember, your team at Merit is here to work hand-in-hand with you and your CPA, not only during tax season but throughout the year. Please do not hesitate to contact us if we may be of assistance in any way.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. LPL Financial, Merit and Merit Financial Group do not offer tax advice.

Posted in Taxes