Tax Preparation: Are You Ready for Tax Season?Susan Letizia
Tax season will be here before you know it. So that you don’t incur a penalty, it helps to be prepared to file your taxes well in advance of the approaching tax deadline. Sadly, nearly 40% of taxpayers wait until the month of April to begin gathering the necessary financial documents that are essential for tax filing.
Even business owners should begin preparing their tax documents. When you prepare in advance, you’ll have an easier time filing your taxes. You are also likely to avoid many common IRS and tax problems.
Here are some helpful tips to remember as you get organized and begin preparing for the next tax season.
Collect the Proper Tax Forms
Both individual and business taxes require a series of documents. The IRS, for instance, requires a specific tax form for your given situation. If you are confused as to which form to use, the IRS has resources you can use, or you can call our tax experts at SCL Tax Services to learn more. We help you with your tax preparation and use the tax forms required.
Common forms include W-2 tax forms, 1099 investment income forms, SSA-1099 forms for Social Security Benefits, forms related to taxable alimony received, and form 6252 for principal interest collected throughout the year.
Keep Your Receipts
When preparing for the tax season, it helps to store your receipts in a single location, such as inside a shoebox or filing cabinet in your office. If you lose important receipts, you could end up paying more.
If you haven’t been collecting your receipts, it’s a good idea to start right now. Gather together all the receipts you can, or you could find yourself scrambling as tax season nears.
While receipts aren’t required to prepare your tax returns, having a box of receipts can save you time and money if you are ever audited in the future.
Do You Need to File an Extension?
If you are unprepared for the season as the date approaches, you may need to give the IRS proper notice. Filing a tax extension lets you file your taxes later in the year. This method is ideal if you plan to work with a tax professional, such as an Enrolled Agent. The Enrolled Agents at SCL Tax Services, for example, as well as our accountants and payroll experts, are less-busy during the off-times of the year. Filing an extension for your tax returns allows you to get more one-on-one attention from your tax expert for easier and faster tax filing.
Review or Revise Your W-4 Tax Forms
If you have undergone any major life changes, you may need to review and revise your W-4 forms. Examples include job changes, employment bonuses, buying or selling a home, going to school, retiring, getting married or divorced, giving or receiving gifts, real estate planning, receiving an inheritance, and casualty and loss deductions.
The IRS recommends that you ask your employer or HR department if you can review and revise your W-4 at least once per year.
Stay Up-to-Date on Tax Laws
The IRS changes the laws and regulations regularly. As you prepare for tax season, you need to be sure to read up on these changes so that you don’t incur any penalties or end up paying more than is necessary to cover your taxes. A tax preparation expert, can prepare your individual or business taxes while ensuring you’re compliant with all the IRS laws, and if any changes occur, you will be notified.
Check for Income Adjustments
You can lower the amount of your taxable income by checking for IRS income adjustments. You can also increase your refund and decrease the amount you owe.
Adjustment examples include IRA contributions, medical savings account (MSA) contributions, energy credits, student loan interest, self-employment health insurance payments, moving expenses, educator expenses, and alimony payments.
Assess Your Deductions
If you are not working with a tax expert, you will also need to check for the appropriate deductions. Common deductions include childcare costs, child tax credits, adoption costs, home mortgage interest, investment interest expenses, medical and dental expenses, and others. Finding all the necessary deductions can prevent you from overpaying on your taxes.
Will You Choose Standard or Itemized Deductions?
At the time of tax preparation, you have a decision to make. Are you going to complete your tax return with itemized deductions or standard deductions? Itemized deductions mean that you get credits for everything you have spent. Standard deductions are taken as dictated by your filing status. If you are unsure which type would be right for you, or what your tax preparation status happens to be, consult with one of our experts to assist you.
You Could Bunch Your Deductions
If you don’t have enough deductions to produce an itemized list, you can bunch your deductible expenses into a single tax year. This lets you surpass the threshold for non-standard deductions status, depending on your filing status.
Have You Contributed to Charities?
If you have made donations to charities or non-profit groups, these expenses are considered non-tax-deductible. Whether you give monthly donations or one-off gifts, ensure that you track every dollar and cent so that you can deduct those expenses from your taxes.
What is Your Filing Status?
The filing status you list can affect how much you owe for the tax season. In some cases, your tax filing status can dictate that you don’t have to file at all.
For example, if you are single, but you are planning on marrying later, you may choose to file separately or jointly, depending on your situation.
Maximize Your Retirement Contributions
You can reduce your taxable income by maxing out your retirement plan contributions. This will also reduce your bill. If you can’t afford to pay the maximum amount, you should at least attempt to match your employer’s contributions, if applicable. That is because employer contributions represent immediate returns on your money since the funds are tax-deferred and grow tax-free.
Plan How to Spend Your Tax Refund
If you receive a tax refund, you might be tempted to spend all that money quickly. A better idea is to plan appropriately so that you can spend your tax return money wisely. For example, do you have significant amounts of debt that could be paid off? A check from the IRS could help you get those amounts down to more manageable numbers, which in turn can help you boost your credit score.
Of course, you could save your tax return check for a rainy day. After all, you never know when you may need the extra funds for a medical or other emergency.
You can also speak with a tax and accounting professional who can help you plan how to spend your refund more productively. This can let you remain in the IRS’s good standings while also putting your best foot forward financially.
Get Prepared by Working with a Tax Preparation Service Professional
The federal government states that 60% of individuals use experts to complete and submit the proper tax forms to the IRS. We also recommend that you work with a tax expert if you don’t have the time or inclination to learn about the latest tax regulations and want to ensure your taxes are always filed appropriately, as well as on time.
SCL Tax Services is open year-round and can assist you with all your issues regarding tax preparation for individuals and businesses in and near Bronx, Eastchester, Westchester, Mount Vernon, and Yonkers, New York. We can help you make the important decisions and remain tax compliant for an easier and faster time come tax season.