I like to get a jump on things when it comes to our annual income taxes. However, it's difficult to do so when our own government can't get its act together until year's end or sometimes later. Having to wait until the last minute to get the documents and information necessary to prepare for our tax filings is frustrating to say the least, but it doesn't mean that there are things I can do to prepare for when the nation's leaders and the IRS get around to providing me with what I need to pay them.
Accumulating Business Expense Data
I make accumulating and maintaining business expenses throughout the year a regular item on my to-do list. Whether it's office supplies, travel expenses, or similar business-related costs, I keep not only a folder with hardcopy receipts of all these items, but I maintain a spreadsheet as well so that I can have a consistent running total of these amounts and factor in how they will affect my overall taxes owed at the end of the year. As a self-employed individual, this helps me determine future taxes owed estimates as well as keeps me from over or underestimating.
Gathering Income Numbers
Self-employed or not, I've always kept a good eye on income numbers since such totals can come from other areas than just my W-2 form. From interest earned on savings to any stock sales or inheritance income, there are a variety of other income lines that have affected our tax numbers throughout the years. And now, as a freelancer, I have more income streams than ever, the tracking of which helps me know exactly where I am at all times throughout the year when it comes to income earned. This way, when tax season rolls around, I'm ready for my next step in the tax pre-prep realm.
Running a Rough Estimate Based on Last Year's Rules
Every year around mid-October or the beginning of November (at latest), I compile all my tax information to that point and run a rough estimate based on the previous year's tax forms. While the numbers from last year may not be exact to what the current year is, if the IRS hasn't gotten around to putting such information out by that point, using the prior year's numbers at least allows me to get a good feel for what we'll be looking at when it comes to taxes owed or hopefully, a refund.
While I don't get down to the nitty-gritty when it comes to income, deductions, and exact numbers, I can usually get a pretty good idea by just doing a quick 5 to 10 minute run through so that when it comes tax time, I'm not finding myself hit by too many surprises.
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