Year-round tax planning tips for taxpayers
Here are some simple things taxpayers can do throughout the year to make tax filing season less stressful.
Organize tax documents. Establish a system that keeps all important information together. Taxpayers can use an electronic document maintenance software program or store paper documents in clearly labeled folders. They should add tax documents to their files as they receive them. Organized documentation will make wage statement preparation easier and can help taxpayers discover overlooked deductions or credits.
Identify marital status. A taxpayer's filing status determines his or her filing requirements, the standard deduction, eligibility for certain credits, and the correct amount of taxes to pay. If more than one filing status applies to a taxpayer, you can get help choosing the best one for your tax situation with the IRS Interactive Tax Assistant, What's My Filing Status? (in English). Changes in family life — marriage, divorce, birth and death — can affect a person's tax situation, including their marital status and their eligibility for certain tax credits and deductions.
Understand adjusted gross income (AGI). AGI and tax rate are important factors when calculating taxes. AGI is the taxpayer's income from all sources minus adjustments. Generally, the higher a taxpayer's AGI, the higher his or her tax rate and the more taxes he or she will pay. Tax planning may include changes during the year that reduce the taxpayer's AGI.
Check withholdings. Since federal taxes are paid based on income, taxpayers must pay most of their taxes as they earn income. Taxpayers should check that they are withholding enough from their pay to cover their taxes owed, especially if their personal or financial situation changes during the year. To check withholding, taxpayers can use the IRS Tax Withholding Estimator. If you want to change your withholding, you must submit an updated Form W-4 to your employer.
Make address and name changes. Taxpayers must notify the United States Postal Service, employers, and the IRS of any address changes. To officially change a mailing address with the IRS, taxpayers must complete Form 8822, Change of Address, and mail it to the correct address in their area. For detailed instructions, see page 2 of the form. Report any name changes to the Social Security Administration. Making these changes as soon as possible will make it easier to file your tax return.
Save for retirement. Saving for retirement can also reduce a taxpayer's AGI. Certain contributions to a workplace retirement plan and a traditional IRA may also reduce taxable income.