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Weekend Challenge 50: Start Prepping for Your Taxes

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The challenge this weekend is to help you get ready for filing your taxes in the next month or two. This weekend you will check to make sure your withholdings were accurate, and that you understand all of the forms you will need to collect before you file your taxes. This challenge should not take long, but it will make it much easier to file your taxes when the time comes.

1. Collect the Forms for Your Taxes

Businesses will not begin to send out your W-2s and other tax forms until January. However, you can create a file to place the forms as they come in. You may want to begin by creating a list of forms you will need before you file your taxes. You will need a W-2 from each of your employers throughout the year, whether you worked full or part time for them. If you worked as an independent contractor you will need to receive a 1099 form from each of the companies or people you worked with if they paid you over $600.00 for the entire year. You will receive a form from your bank for interest they paid to you over $10.00. You will also receive a form for any dividends or other investment income you received. If you paid student loan interest or on a mortgage you should receive a form from those banks as well. You may want to check to be sure they each have your correct address now, so that you receive your forms on time. This step will help you to wait to file your taxes until you have received everything so you will not need to amend your tax return.

2. Check Your Withholdings

You may want to double-check your withholdings using the calculator provided by the IRS. If you are self-employed, you need to calculate an additional self-employment tax that you will need to pay. The withholdings calculator assumes that your income is coming through a job and does not take into account the additional self-employment tax. You may want to adjust your withholdings for next year to prevent yourself from receiving a large refund at the end of the year and to keep you from owing money. You may want to check back after you file your taxes because the tax laws for the next year may be changing.

3. Think About Tax Credits and Deductions

You may want to consider the credits and deductions that you qualify for. If you are still in college and financially independent (paying for school yourself), you may qualify for the education credits. Even if you do not itemize you can take advantage of the deduction on student loan interest. It is an above the line deduction, which makes it available to all taxpayers. If you have children there are several credits that you may qualify for, including the cost of daycare. You may want to review these credits to see if you qualify for any of them, and make a note of the paperwork you will need to collect to claim the credit.

4. Spending Your Tax Refund

If you think you are going to get a refund this year, you should create a plan for the money you will receive. You may want to apply most of it towards getting out of debt or a savings goal. It is okay to use a little bit of the money on something fun. You need the plan or the money will disappear quickly. You may end up spending more than you got back if you do not pay careful attention to the money.

5. Planning for Next Year

It can be a frustrating experience to end up owing money on your taxes. If you are self-employed, it is particularly important to figure out how much you need to set aside to pay your quarterly taxes. You can adjust your withholdings and check on them throughout the year. You can adjust your withholdings as often as you need to. You may have financial changes over the next year, like receive a raise, having a baby or buying a home that will significantly change your tax picture. After each of these changes, you should check back in with the withholdings calculator to see if you need to adjust your W-4 form at work.

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