This is an excerpt from Dollar Scholar, the Money newsletter where news editor Julia Glum teaches you the modern money lessons you NEED to know. Don't miss the next issue! Sign up at money.com/subscribe and join our community of 160,000+ Scholars.
I’m a Floridian, so it’s probably not surprising that I dislike winter.
I know that New York City’s winters are mild when compared to the feet of snow my pals in Chicago and Boston receive on the regular. But that doesn’t make me feel any better. (Thanks, SAD.) I hate that it gets dark early. I hate that my nose is constantly running, and I hate trudging through puddles of gray snow.
I spend most of winter looking forward to its end, when the sun doesn’t set early and I can leave my apartment without the albatross that is my puffer coat. I daydream about sitting in the sunshine in Prospect Park or drinking a weather-appropriate frozen margarita on a bar patio.
“Warmer days are coming,” I tell myself, like a mantra. “April will be here before you know it.”
That’s true on several levels, not least of which is financial. Tax Day is just weeks away. Even if I'm not ready to file yet, there are things I can start doing now — while I’m stuck inside avoiding below-zero temperatures — to prepare.
What should I do to get ready to file my taxes?
I tapped two experts, Peter Blatt, the president of the Center for Asset Management, and Mark Steber, the chief tax officer at Jackson Hewitt, to help me create a checklist. Here’s what they said.
Get my paperwork together
The IRS has mailed out millions of letters to taxpayers who received the third stimulus check and advance child tax credit payments. The notes, formally called Letters 6475 and 6419, contain information about how much money I got so I can properly report it on my taxes. The key is to not throw them away: The IRS specifically said in a news release that “People receiving these letters should keep them.”
My employer should have issued me a W-2 form in January; if I’m unemployed, I should have a 1099-G. Entities like brokerage firms and banks that paid me interest will also send 1099s, though those often go out in February and March. Blatt says that when he’s working on clients’ taxes, “the No. 1 thing I find is a lot of people miss 1099s — if you have five accounts, make sure you have five 1099s.”
I should look closely at all of these papers to make sure there are no mistakes, because these are “documents that have very important consequences,” Steber adds.
“Organize your documents,” he adds. “The shoebox works, the envelope works, if you want to have five folders for income, deductions, credits, life changes and other — that’s fine, too.”
Stash money in an individual retirement account
I’m generally eligible to fund a traditional and/or Roth IRA as long as I have earned income and don’t exceed the $6,000 limit ($7,000 for people 50 and older). I can typically deduct what I contribute.
Making a last-minute IRA contribution is “a time-tested and proven tax tip that can help people get a bigger refund and lower their taxes — and it works all the way up to Tax Day,” Steber says. The 2021 IRA deadline is April 15, 2022.
Deductions are limited, however, for people who earn a certain amount of money and maintain a 401(k), so I’ll need to pay attention if this is a path I'm planning to pursue.
Think about my life changes (and the credits that go along with them)
Speaking of paying attention, Steber says now is the perfect time to take a beat and reflect upon any major lifestyle changes I made in 2021.
Did I get married? Did I have a baby? Did I foster a child? Did I start a business? Did I pay for college? Did I spend a lot on medical expenses? Did I buy a house? The list goes on and on.
These are important questions to ask myself because they could affect which credits I qualify for. I may want to be especially careful in regard to the third stimulus check — if my Economic Impact Payment wasn’t in the right amount, I’ll need to claim the Recovery Rebate Credit on my tax return. If I got advance child tax credit payments, I'll need to file to receive the rest of the funds.
Blatt says I should also think about whether I made any donations to charity last year. If so, I may qualify for a special $300 above-the-line deduction tied to the pandemic.
Run the numbers
“Your tax return is your single largest annual financial transaction for all Americans,” Steber says. So why wait until April to find out what I owe (or am owed)?
Steber says it’s never a bad idea to do a tax projection. He recommends running the numbers in July and December every year, but now works, too: “Scribble it out on a piece of paper. Are you expecting $5,000? Do you owe $5,000? It may motivate you to file earlier if you see something that is not what you expect.”
The bottom line
To prepare now to file my taxes, I should get organized, contribute to an IRA, consider my life changes and do some pre-emptive math.
In all of this, accuracy is paramount. Steber says the IRS has gotten sophisticated with their data matching, algorithms and reconciliation. If I make a mistake on my taxes, the agency will likely route my return down an error resolution path — which could mean my refund will get seriously delayed, given the current backlog at the IRS.
But I don't want to wait too long: The deadline for most taxpayers is April 18, so it's time to get ready and get moving.