Laser Focused How to Make Tax Season Your

Tax season is upon us once again. Let’s begin by exploring the psychology of tax season. There are basically three groups of taxpayers: 1. those that react to tax season with anticipation and excitement, 2. those that react with dread and procrastination, and 3. those that are somewhere in between. Which group do you fall into?

If you react with excitement, you probably have your tax documents, W-2s, 1099s, K-1s, 1098s, property tax statements, donation letters, etc. organized in a folder and ready to go to your accountant as soon as IRS opens the filing season. Your bank statements are reconciled, and your receipts are in date order. You anxiously wait to find out if you owe tax or get a refund with your completed return. Accountants call these the “early birds”, and they enjoy working with them because their excitement and enthusiasm get tax season off to a great start.

Those that face tax season with dread create more of a challenge for accountants. The feeling of dread may be based on feelings of fear and the unknown. These people are usually unorganized with their tax documents. The tax documents come in the mail or email, and they remain unopened until the tax deadline can no longer be avoided. The recipient cannot bring themselves to open the documents and the accountant must open the documents to prepare the tax return. Some procrastinate too long, and the tax return cannot be completed by the April 15 deadline. The accountant must then file an extension for the tax return, Form 4868. An extension creates more fear and anxiety (dread!) in some because they believe that an extension will draw attention to their tax return and increase their chance of audit.

The belief that an extension will increase the chance for audit is not true. Extensions are common and will give you more time to complete your tax return. The last day to file your tax return without penalties will be extended for six months from April 15 to October 15. An extension is required to prevent late filing penalties. However, it does not extend the time to pay tax that is due with your return. Tax that is paid after April 15 may be subject to under payment penalties.

What can we do about procrastination? Procrastination is the result of underlying fear and anxiety. The remedy to fear and anxiety is education. Everyone should understand the basic tax formula. Let’s break down the formula into steps:

1. Income less adjustments to income equals adjusted gross income (AGI).

2. AGI less standard deduction (or itemized deductions) equals taxable income.

3. Taxable income is taxed at applicable rates.

4. Tax less payments equal tax due or tax refund.

The first step is to identify your income. There are many types of income. The most common is wages from employment. All of the information that you need to report your wages can be found on your W-2. Taxable interest and dividend income are earned from your money at the bank and reported on Form 1099. Business income,