You’ve filed your taxes and now feel like you can sigh a big sigh of relief.
While you can, there are still important steps you should take now that your taxes are filed. Tax preparation should take place all year long, not just in the month of April. The more proactive you are throughout the year, the easier it is to stay on track with your taxes.
First, let’s look at what you should do immediately after filing your taxes.
Immediate Steps to Take After Filing your Taxes
There are certain things you should do immediately after you file your taxes. Some steps take place within a day or two of filing and others may take place over the course of a few months. The key is acting right away and knowing what actions to take.
Watch for IRS Acceptance of your Taxes
The very first step is to make sure the IRS accepts your taxes. If you filed electronically, you should know within a day or two (sometimes even hours) if they accepted it. If you used a program like Turbo Tax or H&R Block, you’ll get an email or text telling if the status of your return.
If they rejected your return, immediately log into your dashboard and find out why. Sometimes it’s because you missed a signature or because you used an incorrect efiling PIN. Try to fix the problem electronically if you can and if not, resort to mailing your returns in.
If you filed by mail, the easiest way to see if they accepted your return is to ‘track your refund.’ This will give you up to the minute information about your tax return and when you should receive your refund.
Respond to any Communication Received from the IRS Right Away
Even if the IRS accepted your tax returns, it doesn’t mean everything is correct. As they process your return, which could take months, they might find errors you need to fix.
Common errors include:
- Entering information, such as a social security number wrong
- Not signing the tax return
- Making a math mistake
- Choosing the wrong filing status
The IRS will send you a detailed letter regarding what you did wrong. If it’s something simple, fix it right away and send the information back to the IRS to speed up the process. If you need help, though, reach out to your tax advisor as quickly as possible.
Make any Payments you Still Owe
If you didn’t make the full payment you owed at tax time, make your payments as quickly as possible. The IRS charges hefty fees and interest for every day your tax payments are late.
They do offer a couple of options to ensure that give you a little more time to pay your tax due if you can’t pay it all at once:
- Short-term payment plan – The short-term payment plan is for those who can pay their balance due in 120 days or less and owes less than $100,000
- Long-term payment plan – This is an installment plan (like a loan), and you make monthly payments in a fixed amount that’s approved by the IRS
You can apply for the long-term payment plan online. They call it the online payment plan. You enter some information about yourself and get an instant answer whether your request was approved.
If you can’t get an online payment plan, you can complete Form 9465, Request for an Installment Plan, and mail it to the IRS. This process takes longer, but you’ll get a chance to request a payment plan to make good on the taxes you owe.
Even if you can’t pay your entire or any of your tax liability upfront, make sure you file your taxes. You’ll pay a penalty and interest for not paying your taxes, but not filing your taxes is much worse. Always file your taxes and then work out a payment solution after the fact.
Find a Safe Place to Store your Tax Returns and Tax Documents
After you file your taxes, make sure you find a place to keep the tax returns and all supporting documents. The IRS suggests that you keep them for 7 years as that’s how long they have to come back and ask questions or point out errors on your returns.
Keep the documents in a fireproof safe or safety deposit box to ensure nothing happens to them even if you have a disaster.
Adjust your Withholding or Estimated Tax Payments
After you file your taxes is a great time to adjust your tax withholding or revisit your estimated tax payments.
Look at your tax returns and see how it went. Did you get a large refund, or did you owe a lot of money? Ideally, you should come out not owing anything or getting a refund. This means that you withheld the right amount from your paychecks, or you paid the right amount each quarter for estimated tax payments if you’re self-employed.
If you find that you get a huge refund or you owe a lot of money, talk to your tax advisor about adjusting your withholding or paying more estimated taxes (or the other way around).
While you might love getting that huge refund, it just means the IRS had your money all year, which is an opportunity cost to other investment options you could have had if you didn’t send them the money you didn’t owe.
Owing a large amount of money at tax time can be stressful and impossible to pay, which is why adjusting your withholding or estimated tax payments accordingly can be smart. It will be much less stressful and help you stay on track with your finances.
Talk to your Tax Advisor about Ways to Decrease your Liability Next Year
Even if everything came out looking great when you filed your taxes, review the situation with your tax advisor.
If you paid a lot of taxes for certain things like capital gains or even earned income, discuss how you might be able to lower your liability for the following year.
For example, you may be able to offset any capital gains with losses by using the tax loss harvesting method. If your tax bracket increased because of higher income, you may have other areas you can offset the costs by contributing to an IRA or 401K to get the tax deduction for tax-sheltered retirement accounts.
Your tax advisor can tell you based on your situation what you should do to reduce your liability and make the most of your earnings next year.
Know what to do with your Tax Refund
Finally, it’s important to know what to do with your tax refund. Most importantly, don’t spend it before you even have it. Your tax refund is an overpayment of taxes, so it’s money you likely would have used elsewhere.
Instead of spending it like it’s ‘free money,’ use it wisely. Consider any of the following:
- Pay off your debt. If you have high interest debt, use your tax refund to pay it down or off. This way you’re not paying high interest rates and you can use the money for other things, such as saving an emergency fund or investing for retirement.
- Save for an emergency. If you don’t have an emergency fund, use your tax refund to start it. Your emergency fund should have 3 – 6 months of expenses in it, so your tax refund could be a great start or addition to it.
- Invest for retirement. You can use your tax refund to start an IRA or add to it. Your funds will grow tax-free during retirement too.
- Invest for college. If you have kids, start a 529 savings plan and save for college for your kids. All withdrawals are tax-free if you use the funds for eligible education expenses.
- Invest in your home. If you own a home, your tax refund could help you fix it up and make it worth more. Not all renovations give you a dollar-for-dollar return on your investment, but any increase in value can be a great investment.
Knowing what to do after you file your taxes is important. The more you set yourself up now for tax time next year, the easier it will be on you. Tax time doesn’t have to be stressful or expensive if you know how to handle it.