7 Steps to Take Before You File Your Taxes This Year

Rushing to file your tax return before the deadline may mean making mistakes that could have been avoided. Even now, there is still plenty you can do to plan ahead and prepare before filing your taxes. Here are eight steps designed to help tax filers save money and avoid surprises when filing this year. 

Step #1: Figure Out Your Filing Status

Will you be filing single or jointly this tax year? That’s an easy question for many. But if things change due to marriage, divorce, separation or a passing, your status will change for the filing period. Identify what status you will be listing for this filing period early because it will greatly impact the rest of your tax return.

Step #2: Organize Your Information 

Even if you’re going to ultimately work with a tax professional, using tax software can help you get all of your paperwork together and answer some basic questions. Your preparer may appreciate the organization, and you may be able to save time when meeting with them in-person or virtually.

Step #3: Go Digital

You may find it easier to work through tax documents when they are scanned and organized by topic or deduction type. This is something most people can do on their own. Create a digital folder on a flash drive and have everything ready to file your taxes. Most financial documents provided by a bank, credit card company or even stores can be downloaded, giving you easy access to important financial documents.

Step #4: Hunt Down All Your Charitable Donations

If you opt to take an itemized deduction, your qualifying charitable donations can count towards a tax deduction. You can only claim this deduction if you have proof, typically in the form of a donation receipt. Many people have them, but like other receipts, aren’t sure where they placed them, often having stuffed them in drawers or file-piles. Take some time now and do a thorough sweep for any relevant receipts or documents. 

Step #5: Decide Between Standard and Itemized

Standard deductions for the 2021 tax year are:¹

• $12,550 for individuals
• $25,100 for joint
• $18,800 for heads of household

When itemizing your deductions, make sure you keep all necessary paperwork. There should be a supporting document that objectively validates the deduction. Whether that document is a receipt, proof of address, membership or any other category, you want your paperwork to be able to back up your claims. In an audit there won’t be time for guessing; you either have the proof or you don’t.

Step #6: Catch Up on Retirement Savings

If you have an IRA, you can still make adjustments for the prior year up until you file your tax return. If you have not maxed out your contribution limits for 2021, you and your financial advisor may find it advantageous to post your retirement contributions to the 2021 tax year, even if it is the beginning of 2022. You may contribute up to $6,000 for those under 50 and $7,000 for those 50 and older to your IRA.² This can help maximize your deposit ability for the next year, and may reduce your taxable income for 2022. 

Step #7: Avoid the Estimated Tax Penalty

If you are a business owner or otherwise earn income that does not have taxes automatically withheld from an employer, estimated tax payments may be required or recommended. While it’s too late to make estimated tax payments for the 2021 tax year, now is a good time to determine if you should be making them for 2022.

Estimated taxes may be required or recommended for those who earn income through:³

• Interest
• Dividends
• Alimony
• Self-employment income
• Capital gains
• Prizes
• Awards

Make sure to take your time when filing your 2021 taxes. Double-check this list, and more importantly, contact a tax professional who can help maximize your return and stay on top of recent tax changes for yourself and your business.

Spiritual Application

While "I'll figure it out" and "I'll remember everything" may seem like good strategies in the beginning, you will most likely regret not being more prepared when things become more complicated and time consuming. Proverbs 24:27(NLT) states "Do your planning and prepare your fields before building your house." We can relate this act of building a physical house to the one of keeping our financial house in order. All of us enjoy seeing the harvest that wise financial stewardship brings, but we neglect to remember the work involved to properly prepare ahead of time. 

Whether your field needs a lot of cultivating, or if it is ready for planting, one can't neglect the value of preparation. Your harvest will prove it. 

Evergreen Financial Group is a Fee-Only Financial Planning and Investment Firm located in Billings, MT serving clients in Montana, Wyoming and virtually across the country. Evergreen Financial Group specializes in working with Christian families, including young professionals, Current and Future Retirees and Church Staff Members.