Tax Preparation 101: Are You Ready for Tax Season?Susan Letizia
Tax preparation is incredibly important as tax season approaches. Sadly, roughly 40% of individuals wait until April to begin gathering the necessary documents and information that are required to file one’s taxes.
Even if you are a business owner, proper tax filing preparation is a must.
When you prepare adequately, you’ll have an easier time filing your taxes and you’ll avoid many common IRS and tax-related issues.
Here are some key points to remember as you get organized and begin preparing for tax season this year.
Collect the Proper Tax Forms
Whether you’re filing an individual or business tax return, the IRS requires specific tax forms for certain situations. If you’re not sure which tax forms to use, the IRS has resources you can take advantage of or you can call a tax preparation service expert.
Common forms to collect include W-2 tax forms for you and your spouse, 1099 investment income forms, forms related to taxable alimony received, SSA-1099 forms for Social Security benefits, forms related to rental property income and expenses, and form 6252 for principal interest collected during the year, just to name a few.
Keep Your Receipts
When getting ready for tax season, it helps to store all of your receipts in the same place. Keep a box in your home or office and keep accurate records. If you lose any important receipts, you could end up paying big.
If you haven’t been collecting your receipts, there’s no better time to start. It’s best to start gathering your important receipts now than to scramble at the last minute come tax time.
While having all of your receipts handy isn’t necessary for standard IRS tax returns, you will want to have a cache of receipts if you ever get audited.
Keep Your Previous Tax Returns Easily Retrievable
You never know when you might need to reference a tax return form from the past few years. Keep those returns handy, particularly if you plan to work with a tax preparation expert. Whether you keep your IRS forms in a desk drawer, filing cabinet, or a shoebox on a high shelf, you’ll thank yourself later, when one of these forms becomes necessary and it’s always within easy reach.
Do You Need to File an Extension?
If you haven’t been preparing for tax season and you’re only getting started now, you may need to give the IRS a head’s up. Filing a tax extension allows you to file later in the year. This ideal for you if you hope to work with a tax professional, as those accountants and payroll experts will be less busy during those off-times of the year. When your tax professional isn’t so busy filing taxes for other individuals and businesses, you’ll find yourself filing in less time.
Review or Revise Your W-4 Tax Forms
Go over your W-4 and determine if you’ve experienced any life changes that may affect your taxes. These include employment bonuses, job changes, buying or selling a home, getting married or divorced, going to school, retiring, giving or receiving gifts, receiving an inheritance, real estate planning, and casualty and loss deductions.
Ask your employer if you can review and revise your W-4, as the IRS actually recommends that you do this on a yearly basis.
As you prepare for tax season, you have an important decision to make. Are you going to file your taxes on your own or are you going to trust a tax preparation service? If you are going to file on your own, ensure that you research all appropriate tax laws and regulations on a regular basis. Tax regulations are constantly evolving and that means that not being educated can cost you money or keep you from receiving important deductions.
Deciding to work with a tax preparation service professional can save you money in the long run. Tax professionals keep up with the proper laws and have the expertise to uncover relevant deductions that can save you money while putting you in good standing with the IRS.
Check for Adjustments to Your Income
You can reduce the amount of income that is taxed by checking for various adjustments to your income. This can increase your tax refund and lower the amount you owe.
These adjustments to your income may include IRA contributions, energy credits, medical savings account (MSA) contributions, student loan interest, moving expenses, self-employment health insurance payments, alimony payments, and educator expenses.
Assess Your Deductions
If you’re not working with a tax professional, it will be up to you to check for all appropriate deductions. This is another good time to check for important life changes, like having a child or becoming disabled. Ensure you research all possible deductions so that you never overpay on your taxes.
Common deductions include child tax credits, child care costs, education costs, adoption costs, investment interest expenses, home mortgage interest, medical and dental expenses, and more.
Will You Choose Itemized or Standard Deductions?
Depending on your unique tax situation, you may need to do itemized deductions. This means that you get credits for everything you have spent. The alternative is to take the standard deduction that is dictated by your filing status. If you’re unsure which type of tax preparation status you should choose, consult with a tax plan expert who can readily assist you.
Have You Considered Bunching Your Deductions?
If you don’t have enough deductions for itemized deductions, you can bunch your deductions by pushing deductible expenses into a single calendar year. This allows you to surpass the threshold for non-standard deductions status depending on your filing status.
Are There Any Charitable Donations?
If you have made any donations to charities or non-profit groups, these expenses are considered to be tax-deductible. Whether you have monthly donations or one-off gifts, ensure that you track every cent so that you can deduct these expenses from your taxes.
Review Your Filing Status
Your filing status can affect how much you owe in taxes this upcoming tax season. In some cases, your tax filing status will dictate that you don’t have to file at all.
For instance, if you are single but you’re planning on marrying later in the year, you may choose to file jointly or separately, depending on your unique situation.
Maximize Your Retirement Plan Contributions
By maxing out any retirement plan contributions, you can effectively reduce your taxable income, which will, in turn, reduce your tax bill. If you can’t afford the maximum amount, you can at least attempt to match any employer contributions. That’s because employer contributions essentially represent immediate returns on your money, as all of the funds are tax-deferred. Furthermore, these contributions grow tax-free.
Plan Out How to Spend Your Tax Refund
If you receive a tax refund, it can be easy to spend all that money quickly. Instead, create a plan so that your money stretches much further. For instance, do you have significant debt that could be paid off? A big check from the IRS could help put a dent in those liabilities, which in turn can improve your credit score.
Of course, you don’t have to spend your refund at all. You could put the money away for a rainy day, such as for medical or automobile emergencies.
A tax and accounting professional can also help you adequately plan how to spend your refund so that you remain in good standing with the IRS and put your best foot forward financially.
Are You Ready to Work with a Tax Preparation Service Professional?
According to the federal government, 60% of individuals use tax preparation experts to complete and submit their IRS tax forms. This may be the best-case scenario if you don’t have the time or inclination to keep up with the latest tax laws, and you want to ensure that your taxes are always filed appropriately and on time.
Call for All Tax Problems, Questions or Concerns
SCL Tax Services is open all year round to help you with your tax-related questions and concerns. During tax season, our office is open on Saturdays from 10 am to 6 pm and Sundays from 12 pm to 3 pm.
However, no matter what time of year it is, call and schedule a free consultation with one of our tax preparation experts. We can guide your preparation efforts and help you file with the IRS so that you remain in good standing.
If you have IRS back taxes or other tax-related problems, we can help with those also. We are known for helping our clients find important deductions, select the proper filing status, and plan for common life events.
If you are an individual or business owner who has yet to prepare for tax season, there’s no better time than right now. Call today for a free consultation and we’ll get you ready for this and every subsequent tax season.