3 Important Moves You Should Make Before Tax Day

Stress less during tax time by preparing beforehand.

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April 15th is typically the day taxes are due to be filed for the previous year. Even though this date is consistent, most people find themselves scurrying to get their paperwork together the week (or day) beforehand. 

Instead of stressing yourself out, and possibly incurring rush fees from your accountant, why not take the time to prepare beforehand? 

You can never begin too early, especially if you're going to have your taxes filed by a professional, or if you're self-employed.

Here are three important moves you should make before tax day to alleviate stress.

1. Submit Your Paperwork Early

The earlier you get started, the more time you will have to make sure all of your financial ducks are in a row. Do this by ensuring your CPA or financial advisor has your paperwork as early as possible.

Giving them ample time to advise you may help them track down any prior-year opportunities you may still qualify for. So round up all of the following documents and organize them by section for easy access and review by your CPA:

  • Your most recent tax return
  • Any/all tax notices you received from the IRS
  • Form W-2 for proof of wages from your employer
  • Form 1099 for earnings on interest and dividends, etc.
  • Other investment transaction records (i.e. brokerage statements from stocks and bonds, etc.)
  • Schedule K-1 form for income for losses from partnerships as corporations, etc.
  • Real estate transaction paperwork

When you’re getting ready to submit your financial documents for your CPA’s review, keep all of your paperwork organized and ready to go.

Not only will this head-start save you from certain tax headaches, but, if your CPA charges per hour, being organized and ready to go may save you some money as well.

And remember, when in doubt on which paperwork to submit to your CPA, bring it all. They would much rather have too much information than realize they’re missing critical information. This eliminates back-and-forth, too.

2. Make Retroactive Contributions

Do you regret not maxing out your retirement or college savings account last year? Even though the year has technically come and gone, you can make retroactive contributions to your IRA, Roth IRA, 401K, HSA, 529, or Coverdell Education Savings Account and choose to make it a contribution for the prior tax year.

All you need to do is indicate the year for which the contribution should be attributed, and ensure that all final payments are postmarked by tax day. Any contributions received with no year indicated will be considered a current year contribution.

This is a great last-minute tax move to make and it has the added benefit of helping you max out your savings accounts.

3. Check to See if You Need to Make "Removal of Excess Contributions"

On the flip side of the coin, if you accidentally contributed too much money to your savings accounts last year, you can use this to time to make any necessary removal of excess contributions.

For example, if you accidentally contributed $5,500 (the current limit) to both a Traditional IRA and a Roth IRA, you will need to withdraw $5,500 total from your accounts. You could remove $2,250 from each, $4,000 from one and $1,500 in the other, or any other combination you prefer, as long as your combined contributions to both accounts do not exceed the annual maximum of $5,500.

If you fail to make any “removal of excess contributions” by withdrawing the excess funds from those accounts before tax day, you will have to pay a 6 percent tax penalty on the extra money plus the interest it accrued. Ouch!

This is why it pays to have time on your side prior to tax day. Carefully review all of your accounts and ensure that you haven’t gone past the contribution limits. Calculate the excess amount of your contribution by subtracting your contribution limit from your contribution amount, and contact your financial institution to find out how much interest or other earnings your excess contribution generated while it remained in your account.

Get a withdrawal request form from your financial institution and request any necessary distributions from your accounts before tax day to avoid any tax penalties. Remember to also report the withdrawal of excess contributions as income, because it is subject to a ten percent early withdrawal penalty. 

Take Advantage of Having Time Before Tax Day

To err is human, and to err on taxes is especially human. Don’t fret over financial mistakes while you still have time to fix them.

Use the time before tax day to get organized, inform your CPA, and correct any filing mistakes you may have made. Tax day will go much smoother if you do the legwork now instead of at the last minute.