How to Prepare Yourself for Tax Season

Photo by Kelly Sikkema

Originally Posted On: How to Prepare Yourself for Tax Season – The European Financial Review

According to statistics, most people use professionals to file taxes mostly because of the inconveniences and time. The Internal Revenue Service (IRS) recently reported that over 80 million used paid experts to file returns for them. This report shows most people weren’t prepared or didn’t have much time during the tax season. While you can hire someone to file returns on your behalf, you need to play the more significant part, organizing receipts, forms, and other necessary documents before the tax season. Here are some steps you need to take.

The first step for getting prepared is to find a reliable tax preparer. If you don’t have one, you can seek recommendations from your lawyer, family members, or friends. They must fulfill all the conditions required, including having a Preparer Tax Identification Number. The PIN shows that they are genuinely authorized to carry out tax returns. Another thing is to know the estimate of what you are supposed to pay plus the preparer fees. You can use the estimated tax payments calculator to get the estimates before engaging the preparer. Preparer fees depend on the complexity of the returns. The more involved they are, the higher their costs will be. To avoid being overcharged, get quotations from different service providers.

After getting the values and the fees required, it’s time now to meet the preparer. The sooner the meeting, the earlier they will be able to complete your returns. Early filing will also make sure you get your refunds, if any, early in advance. Getting late to meet your preparer will also make you miss opportunities for lowering your tax bill, including deductible contributions. You should also note that the last day of filing your returns is July 15th. Do it early to avoid penalties.

If you have been a taxpayer and very keen, you have noted that various tax documents, including those from employers, brokerage firms, banks, and business partners get to you at the end of January, every year. You need to check that all documents are available depending on your checklist, and make sure that they match your records. Some of the common forms received by taxpayers include Form W-2 for the employed, 1099 forms for other incomes such as dividends, Form 1098 for mortgage interests, and W-2G if you participate in gambling activities.

The receipts you will present for your tax returns depend on whether you have itemized your returns or claim the standard deductions. You need to choose one option that will provide a greater write-off. The only way to know which one will benefit you is by adding them up and making the comparison. Other things you should look for are the medical receipts not covered by insurance, property taxes, and other investment-related expenses. Although some have limits, they will help you a lot when it comes to deductions. If you prefer making the itemized deductions, you will be required to provide details of any charitable work you have done, gifts, and any other help you have provided. If you run a business, you will be required to provide income books and statements, including accounting systems reports, receipts for expenses, banks, and credit card statements. Having all these records will ensure a smooth flow of all processes and enable faster processing of your returns.

Personal information involves the details concerning your personal information and that of your dependents. It may comprise your Social Security Number and that of your dependents, and any other detail required by the tax preparer. Other details might include the number of business properties you own, including vocational homes and rentals, and houses you have bought and sold over the past year. It would help if you also listed the value you bought the house and the selling price.

When you note that time is not on your side, you can request an extension, usually granted until October 15th, to file your tax returns. Even though extension will be granted, you need to estimate the amount you are supposed to pay and make payments before April 15th, as required to avoid penalties. The 2020 extensions should have been received by July 15th, and the estimates paid early to avoid interests and penalties.

In case you are expecting refunds, you need to plan for them. Here are some options you can use for the refunds:

• You can apply and ask the refunds to stand for your next year’s taxes, especially if you have estimates. They can cover the first quarter installments.
• You can receive a check or a direct bank deposit from the government on the refunds.
• You can redirect the refunds to other accounts, including education savings accounts and health savings accounts.
• Purchase bonds through Treasury Direct.

Before conducting all these processes, you need to inform your tax preparer to know what to do.

If you have been using the same preparer to file your taxes, they might still have your precious records. It would help if you asked them about this. If you have a new person, it’s advisable to give the previous returns to guide them on your returns. However, you need to note the Interests and Dividends: the returns should indicate the banks, mutual funds, or other financial institutions you received their 1099 forms. Ensure you received the same types of forms this year. Charitable deductions: if you sent gifts or participated in any charity organizations and never received an acknowledgment, you can deduct them as long as there is proof. You need to check on your last year’s gifts and contributions and check if you made the same donations this year.

Filing tax returns is a requirement for everyone, whether employed or self-employed. Whether you hire someone or doing it on your own, good record-keeping is essential. It helps you save time and money since the process will be more straightforward. It would help if you started early to have a flawless process and avoid penalties in a late filing. We hope the points in this article have come handy, especially if you didn’t have the know-how.