Are you trying to figure out how to prepare taxes successfully? Read this article to learn top tips for preparing your taxes.
Wondering how to prepare taxes without losing your mind?
With constantly changing tax laws and complicated processes, filing taxes isn’t always easy.
If you have a fairly straightforward tax situation, filing taxes on your own can be a money-saving option. If you have a complex financial situation, it may be worth it to hire a tax preparer.
No matter what you decide, being prepared for filing taxes makes the process easier.
Follow these 10 tips when you’re ready to tackle your taxes.
Gather Your Documents
Before you start preparing your taxes, you need any tax documents you received from your employer, financial institutions, and other sources. Keep an eye on the mail starting in early January, and put all of the documents in a safe place until you file.
Once you’re ready, pull out the documents to make sure you received everything. If anything is missing, check with the entity that should have sent it to you.
The W2 is the most common tax document. It shows all of your earnings and deductions from your job. You can create a W2 online to show your earnings.
Other possible documents include:
- Various 1099 forms for interest, dividends, independent contractor work, retirement distributions and other income
- W-2G for gambling winnings
- 1098-E for student loan interest
- 1098 for mortgage interest
These are just a few common tax documents issued each year. You could have other documents if you have special financial situations.
Verify Document Accuracy
Sit down with your tax documents and review them for accuracy. They should be printed correctly, but there’s always the possibility of a mistake. If something doesn’t look correct, check your records to verify the information you have on hand.
Contact the entity that issued the document if you notice a mistake. Ask for a corrected copy of the document.
The IRS can help you if you don’t receive the updated copy of the document. They’ll send a letter to encourage the company to send the corrected document.
If everything looks correct, you’re ready to start preparing.
Decide How to Prepare Taxes
Even if you’re set on preparing taxes yourself instead of using a professional tax preparer, you have some options on how to do it.
You can use a traditional paper form. You get tax forms online or pick them up in person at locations in the community, such as libraries and post offices.
Many people choose to use electronic filing through various online options. Some are free. Others are available through nationwide tax preparation services or software companies for a fee.
If you pay a fee, you may get varying levels of support and verification from tax professionals. This can minimize the risk of mistakes.
Another option is the Free File Alliance, which provides free electronic tax services if your adjusted gross income is $69,000 or less.
Use Last Year’s Return as a Guide
Much of the basic information you need is available on last year’s tax return. Pull out a copy to make it easier to find things such as social security numbers for dependents.
Some online tax preparation methods allow you to pull information for the previous year’s return if you used the same system last year. This can save a lot of time when you sit down to prepare your taxes.
Look at Your Deductions
When it comes to deductions, you can either take the standard deduction or itemize your specific deductions.
For most people, the standardized deduction is the best option. Only about 30% of taxpayers use the itemized deduction option.
Look at the deduction you qualify for and compare the total to the standard deduction for the tax year to determine which one is higher. The higher deduction option saves you the most on your taxes.
The tax deadline is usually April 15. If the deadline hits on a weekend, the filing deadline typically moves to the next business day.
If you can’t get your taxes completed by the deadline for any reason, file an extension. If you ignore it without filing an extension, you could end up paying for it financially.
Filing an extension doesn’t mean you can wait to pay if you owe money. You should send a payment for what you expect to owe when you file for taxes. If you don’t, you’ll likely pay interest and other fees on the amount.
Be Accurate and Honest
Never try to sneak something past the IRS by filing an inaccurate tax return. The IRS uses software to spot potential fraud and errors, which means you’ll likely get caught. Complete all forms as accurately as possible to save yourself potential penalties down the road.
Ask for Help if You Need It
You may go into preparing taxes yourself with confidence only to find you’re not sure what to do. You might realize once you get into it that your tax situation is more complicated than you realized.
It’s okay to ask for help or decide to go to a professional tax preparer after you start. Paying the money for professional tax help is often worth it to maximize your refund or lower your tax liability. It can also help you avoid penalties for mistakes.
Double Check Everything
You’ve finally completed your tax returns. You’re ready to be done with it.
But don’t submit everything just yet. It’s always the best practice for preparing taxes to double-check your work.
One simple mistake can affect your entire return. You might switch a few numbers, put a decimal in the wrong spot, or enter a number incorrectly. It could be a calculation error if you’re preparing a paper form.
The chances are good that the IRS will catch your mistake. It could result in you owing more taxes or being faced with penalties and interest for not paying what you owe on time.
Respond to the IRS
If the IRS contacts you for any reason regarding your tax returns, don’t delay in responding. If you ignore the IRS, you could find yourself facing severe penalties, wage garnishments, or liens on your home.
Even if you’re diligent in preparing your taxes, you might make a mistake. The IRS will contact you if they catch the mistake.
If you agree with their findings, you typically don’t have to do anything else, but you may need to pay additional taxes.
If you disagree with what the IRS says you owe, you’ll need to send a response along with evidence.
No matter what the situation, it’s always best to communicate quickly with the IRS to resolve the issue.
How to Prepare Taxes
Figuring out how to prepare taxes can be confusing. Taking a systematic approach and reaching out for help if you need it makes the job easier. Read our blog archives for more financial tips.