When tax day comes around, many people simply don’t have the necessary time to prepare and file their taxes on time. This can lead to massive confusion on your part and heavy fines levied to you by the IRS. Instead, of this messy process, it’s best to take care of your taxes throughout the year. Still not convinced? Below, are the top five reasons to take care of your taxes during the year, instead of trying to tackle it all at once.
1. Reduces Tax Stress
Tax time can be incredibly stressful, especially for those doing taxes for the first time. This is why it’s crucial to take care of your taxes throughout the year and prevent procrastinating it. The last thing you want is to be stuck with a huge tax bill you have to pay in a matter of weeks or days. So, make sure you’re well prepared to reduce tax stress at the beginning of the year.
2. You Might Have to Make Quarterly Tax Payments
If you own a small business or freelance, you may have to make required quarterly tax payments. In general, these quarterly estimated taxes are a way of the government collecting your taxes throughout the year, compared to one steep payment at the final quarter. It’s important that you pay these taxes as quickly and accurately as possible to avoid owing more than necessary.
3. Easier to Take Advantage of Tax Breaks
When you take care of your taxes throughout the year, you’re able to take advantage of more tax breaks. If you regularly contribute to the IRA and HSA, for example, you’re prone to having to pay more if you take care of your taxes at the end of the year, compared to taking care of them during the entire year. Unfortunately, not too many people have the kind of money to make such a large contribution at the end of the tax year, making it important to manage your taxes throughout the year.
4. Avoid Paying a Large Amount When Tax Day Comes Around
One of the easiest ways to avoid overpaying or having to pay a large lump sum on tax day is by planning year round. If you have to pay a balance of your taxes, it can be difficult to come up with the cash if you wait until the last minute. You may end up having to save thousands of dollars in just a few months, which may be difficult or even impossible.
If you plan for your taxes throughout the year, you can be better prepared when it comes time to file. Keep a close eye on your finances and try to determine what you need to pay far in advance. Then, you can start a personal savings plan to avoid any penalties or fees from the IRS. By taking care of your taxes during the year, you can avoid some stress and a potentially damaging financial situation.
5. Prevent a Large Tax Return
Though getting a huge tax return may sound like a good thing, it is not the best situation to be in. While it may be better than owing a lot of money, getting a lot of money back means that the IRS was holding a lot of your money. Instead of sitting at the IRS gaining 0 percent interest, you could have invested that money in stocks, contributed to your retirement fund, or paid off a debt. Though this may not seem like a lot, the larger your tax return, the bigger the missed opportunity. You are better off handling your cash and making it work for you than the IRS is.
Paying attention to your taxes all year round is a great way to reduce stress and maximize your savings. By handling your finances throughout the year, you can pay less, take advantage of tax breaks, and more. For these reasons, you should always make tax preparation a regular part of your life throughout the entire year.