Tax Season Tips for Young Professionals
With the 2016 tax season coming to a close, one of the most beneficial tax decisions you could make is to start thinking about the 2017 tax season now. With some organization, thought and preparation, a dreaded tax bill can be reduced or even avoided with advanced planning.
First, implementing an organized system for filing your financial records this year in preparation for the next will save you time. Throwing all your important documents into a drawer won’t help much when an emergency occurs or you need to find a certain piece of paper.
Make a list.
Thankfully, emergencies are a rare occurrence. However, you may need to be able to access relevant personal records if you’re ever a victim of theft, identity fraud, or audited by the IRS. Make a list of important records such as:
Bank and investment accounts
Real estate and homeownership
Credit card accounts
Health care benefits and medical history
Marriage and your estate
Grouping the items into broad categories such as these will make them easier to file and find later. You should keep your prior tax returns and related financial records for a minimum of three years, but five to seven years is recommended.
Establish your approach.
Create a central filing system. The ideal storage medium for personal documents is a fire-, water- and impact-resistant security cabinet or safe. Create a master list of the cabinet contents and provide a copy of the key to your executor or a trusted family member.
Designate a second storage location or back up records electronically. Maintain a duplicate set of the records in another location, such as a bank safety deposit box or saved to a trustworthy external storage device. If opting for a cloud-based backup system, choose your provider carefully to ensure its security measures are as stringent as possible. Provide access to a trusted individual and consider keeping originals of your important legal documents, such as your will, with your attorney.
Things to consider.
Once you have your organizational system in place, you need to consider the actions you take throughout the year. More often than not, people simply are not aware that there can be tax consequences related to decisions made during the year and they miss the opportunity to pay lower taxes when possible. Some of the items that could affect your taxes are:
Changes in retirement accounts: new accounts, rollovers, withdrawals
Receiving cancellation of debt income
Starting a new business: consider accounting software like QuickBooks, or summarizing activity in an excel spreadsheet
Investing in foreign assets, including opening a bank account and foreign trusts
Investing in new partnerships, trusts, small business