An Enrolled Agent, or EA for short, is a tax advisor who has earned the privilege of representing taxpayers before the Internal Revenue Service by completing a three-part exam, and is also the highest credential you can be awarded by the Internal Revenue Service. In honor of Mother’s Day, I’m sharing a few great tips my four sons will learn early to set them up for success because their mom is an Enrolled Agent.
Understand the basics of tax
Even if you employed a CPA or EA to prepare your tax return, I advise to invest time to understand the basics of tax. I plan to spend time teaching my sons the importance of understanding your tax documentation, common tax terminology and how to file a simple tax return. These skills are imperative for them to be successful financially as young adults. Plus, the knowledge will hopefully alleviate any anxiety that tax season could bring by being prepared and having that basic understanding of what is to come.
Save and organize all tax documentation
The last thing you want to spend time doing right before a filing deadline is hunt for tax documents you received earlier but can no longer find. I plan to teach my sons how to properly save and organize all tax documentation they receive so that when it does come time to file their tax return, it will be easy to grab exactly what they need.
It is also important to keep records for 3 years from the date you file your tax return. Not only are those documents needed for tax purposes, they can also be needed in the event you are buying a home or another large purchase.
Furthermore, if you frequently make charitable contributions or other purchases that you need to track for tax purposes, I recommend using a budgeting app to help. Intuit’s Mint app has a great feature that allows you to tag any tax related purchases. When it comes to tax time, you can select that tag and Mint will display all purchases relating to that category, a common example being charitable contributions. Using this app is a quick and easy way to ensure you do not forget purchases you made earlier in the year that could help reduce your tax due.
Frequent tax projections are your friend
No taxpayer enjoys paying a substantial amount of tax when it comes time to filing their tax return. In fact, an American Psychological Association survey found that nearly three-quarters of Americans cited money as a major source of their stress. By not adequately planning for tax season, that stress can be magnified.
My sons will learn early on to track and understand their finances. It is important to know how to properly fill out the Form W-4, which is for employee withholding, as well as periodically check the amount of withholding on your paycheck. At a minimum, I recommend checking the amount being withheld quarterly. I have found payroll errors that could have drastically affected my tax due if I had not been checking the withholding often. If you are self-employed you may want to track your finances monthly, especially if your income frequently changes. The IRS has a great tax withholding estimator that can help determine if you are withholding too much or too little tax.
Although I may be a bit biased, having a mom as an Enrolled Agent can come in handy. As soon as they are old enough, I plan to teach them how important it is to properly save and organize all tax related documents, the basics of tax and how frequent tax projections throughout the year can help alleviate any anxiety when it is time to file their taxes. Although my career may not be as ‘cool’ as their dad’s career in open pit mining, thanks to what I will teach them, they will have a solid understanding of how to be financially successful early on which will help in any career field they choose.