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Essential Tax Season Preparation Tips

tax computation

You’ll rarely hear people talking about tax season in a positive light. The experience of getting stressed out and resorting to procrastination is a fairly universal one. However, if you know how to prepare for doing your taxes ahead of time, it can greatly reduce anxiety and frustration. Here are a couple of preparation tips to make sure you’re ready for tax season. 

Gather Materials for What You Owe

If you have everything you need gathered in one place and ready to use, you won’t have to periodically stop the tax filing process to go searching for documents and information. First of all, make sure you have all of the documentation required to declare your income, as you’ll need to calculate whether you owe anything. 

For example, have your W-2 form ready, which contains all of the earnings information you need to enter in, and it will contain your employer’s tax ID number. There are a number of other forms that may have pertinent information for you. For example, if you are an independent contractor, you should have a 1099-MISC form. Your employer is obligated by law to get these forms to you, so make some inquiries if you don’t have one yet. You’ll also need your Social Security number.

There are other taxable sources that you should be aware of. Interest on savings accounts is taxable, so it is a good idea to get a hold of statements and tax forms on those accounts if you have them. Taxable interest is usually reported in a 1099-INT. If you are invested in stocks or mutual funds, or you’ve received earnings from broker transactions, you’ll need 1099-DIV and 1099-B forms respectively. 

Tax Prep for Businesses

Conversely, if you are a business owner, there are a lot of factors to consider, along with supporting documents available to make sure filing your company’s taxes on your own goes as smoothly as possible.

To start, It’s a good idea to have your tax return from the previous year with you when you’re latest tax return. It’ll have things like your federal tax ID number, your business code number and business activity descriptions, and lots of other vital information. A previous return is also helpful if you need to check for any red flags or if you’d like to compare previous expenses and profit over this year’s finances.  

You’ll also need accounting statements, bank records, credit card statements, and payroll information–basically anything that has to do with your company’s expenses and income. It’s a good idea to have all your accounting information on hand, because regardless of which software you use, organizing your accounting records makes tax preparation much easier. The same goes for banking information. Analyzing deposits and expenditures will enable you to categorize income and deductions to prepare your tax return. 

Filing taxes as a business owner can be daunting as there’s so much to remember and keep track of. However, having all these things organized and reconciled makes filing everything that much easier.

tax receipt

Take Stock of What You Can Deduct

If you want to deduct expenses from the taxes you owe, you’ll need documentation for that too. It is a good idea to have all of this information ready so you can wrap things up fast. 

If you are claiming dependents, you’ll need all of their Social Security numbers in addition to yours. Think of all of the credits you are claiming as well, because you’ll need paperwork for them. For example, a child care credit requires the tax ID number of whoever is taking care of your child. If you are self-employed you can deduct your business expenses, but you’ll need bills, receipts, and other types of documentation to prove it.

Are you self-employed and paying your own insurance premiums? Those premiums can be 100 percent deductible, as long as you don’t qualify for health insurance from your spouse’s job.

Have you taken out a large loan that you are paying interest on, such as a mortgage or a car loan? The interest is tax-deductible, and you’ll need 1098 forms for those loans if you want to deduct them. 

You can also make deductions for paying certain taxes. Real estate taxes are often deductible, and you can get a 1098 for those too. Further, state and local income taxes are deductible, as well as any personal property taxes you might pay, such as on your car. The information for these deductions comes on your W-2. 

Finally, you can take deductions for your charitable activities if they are substantial enough. For example, if you donate personal items that are over $250 in value, you can deduct that value from your taxes. Just make sure you get receipts for your donations. You can also deduct the mileage you accumulated in the course of volunteer work. 

Research Your Filing Status

Your filing status will have an important effect on your taxes. For example, your filing status can look very different if you are single or married. If you are married, but then get divorced, your taxes will change as well. The same holds true if you have children you consider as dependants in the eyes of the IRS.  Consequently, their status changes as well once they’re filing their own taxes and they’re longer financially supported by you.  

Get Started

Once you have all of the required materials and documentation together, you’re ready to begin the tax filing process. Luckily you’ve already covered a lot of ground! All you need to do now is put in all of that information and send it out. 

What type of tax program are you going to use? A casual search will retrieve all sorts of web-based solutions that make filing your taxes easy, or you could use software on your computer like Turbo Tax. 

With this basic preparatory information, you’ll be able to get everything you need together and get your taxes in fast. If the tax filing process proves to be more complex than you initially thought, there is no need to sweat it. You can request an extension with the 4868 form and avoid any associated penalties. With preparation and diligence, tax season shouldn’t be as stressful as it used to be.

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