Steps To Take Before You Prepare Your Taxes

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Steps To Take Before You Prepare Your Taxes

According to the Internal Revenue Service, about 85 million individuals hire specialists to prepare and file their tax returns (IRS).If you are one of them, it is critical that you arrange your receipts, forms, and other documentation well in advance of tax season.

Your preparer may collect information directly from you or request that you fill out a questionnaire. In any case, a little planning ahead of time can help you go through the procedure swiftly and simply. Even if you handle your own taxes, the methods outlined here will assist you in becoming prepared.

Key Takeaways

  • Gather all of your yearly tax records that reflect your taxable income and deductible spending, the majority of which will arrive by the end of January.
  • If you itemize your deductions, gather all of your receipts and classify them by category.
  • If you utilize the standard deduction, you don’t need to keep any receipts.
  • Gather a copy of last year’s taxes for future reference.
  • All of the tax forms you’ll need for your tax return are available through your tax professional, tax software, or the IRS.

Choose a Tax Preparer

If you don’t already have a tax preparer, contact friends and consultants (such as an attorney you know) for recommendations. Make certain that the individual you choose has a preparer tax identity number (PTIN), indicating that they are permitted to file federal income tax returns.

Make careful to ask how much they charge in fees. Of course, this is dependent on the intricacy of your return. Avoid selecting a company that takes a cut of your return. The IRS website includes advice on selecting a preparation as well as a link to the IRS database of preparers, where you may search by qualifications and region.

Taxpayers in areas of Kentucky were allowed delays on their tax forms due to a destructive storm in December 2021. Additionally, taxpayers who were affected by wildfires and high winds in Colorado were allowed additional time to file forms and make tax payments. You may check IRS disaster relief notifications to see whether you are eligible.

Schedule an Appointment

Even if you decide to request for an extension, the sooner you meet with your preparer, the sooner you should be able to finish your return. If you expect a refund, you’ll receive it sooner as well.

If you wait too long to book an appointment with a tax preparer, you may miss the deadline. That means you may lose out on tax-saving options, such as making deductible contributions to an individual retirement account (IRA) or a health savings account (HSA).

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Gather Your Documents

By the end of January, you should have received all of the tax documentation you need from your employer or employers, as well as banks, brokerage companies, and others with whom you do business. Check that the information on each form corresponds to your own records.

These are some of the most common forms:

  • Form W-2 if you had a job.
  • Other revenue reported on 1099 forms, such as dividends (Form 1099-DIV), interest (Form 1099-INT), and nonemployee remuneration given to independent contractors (Form 1099-MISC).Brokers aren’t obliged to send out Form 1099-B, which details profits and losses on securities transactions, until mid-February, so they may arrive later.
  • Form 1098 is used to record any mortgage interest paid.
  • If you had certain gambling wins, you must file Form W-2G.

The more structured your documents are, the less time it will take a preparer to file your taxes, resulting in cheaper rates.

Round Up Your Receipts

The receipts you’ll need to supply may vary depending on whether you itemize or take the standard deduction. You should select whatever generates the larger write-off, but the only way to be certain is to sum up your itemized deductions and compare the total to your standard deduction.

For the 2021 tax year, the standard deduction is $12,550 for single taxpayers and $25,100 for married couples filing jointly. In 2022, these amounts will rise to $12,950 for individuals and $25,900 for married couples filing jointly.

Look for receipts for medical expenditures that are not covered by insurance or paid by another health plan (such as a flexible spending account (FSA) or an HSA), property taxes, and investment-related charges. All of them are subject to limitations, but if they are significant enough, it may be worthwhile to list.

Even if you use the standard deduction, you may deduct up to $300 ($600 if married and filing jointly) in cash gifts given to eligible organizations in tax year 2021. Also for tax year 2021: If you itemize, you may deduct up to 100% of your AGI for cash donations to eligible charitable organizations if you itemize.

If you itemize your deductions, you must also gather any charitable donation backup. Donations of $250 or more, for example, need a formal acknowledgement from the charity specifying the amount of your contribution and that you received nothing (other than possibly a small item) in return. If you don’t have such a letter, contact the charity and ask for one. More information on charity deductions may be found in IRS Publication 1771.

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If you have business income and costs to report on Schedule C, you must include your books and records, such as QuickBooks or another accounting system, expense receipts, and applicable bank and credit card statements.

List Your Personal Information

You most likely know your Social Security number (SSN), but do you know the SSN of each dependant you claim? You should write them down (in a secure location, of course), along with any other information your tax preparer may want.

Make a note of the addresses if you own a vacation house or rental property, for example. If you sold a property in the last year, keep track of the dates you purchased and sold it, the price you paid for it, and the money you earned from the sale.

Decide Whether to File for an Extension

If you need extra time to accomplish all of these chores, you may file your tax return on October 15th and request an extension. To avoid fines and interest, you must still estimate how much tax you owe and pay it by the customary April 15 date.

Plan Ahead for Any Refund

If you anticipate receiving a tax return, you have numerous choices regarding how to handle it.

  • You may use part or all of your return against your taxes for the next year. If you normally pay anticipated taxes throughout the year, you may be able to cover the initial quarterly amount.
  • The government may either mail you a paper check or deposit your return into your checking or savings account.
  • You may put part or all of your return into specific accounts (IRAs, health savings accounts, education savings accounts), or you can use it to purchase U.S. savings bonds via TreasuryDirect.

By completing Form 8888, you may also divide your return among the direct deposit options.

You must inform your tax preparer of your intentions so that they can include it on your return.

Find a Copy of Last Year’s Return

If you hire the same preparer as last year, they will very likely have your past data. If you utilize a new preparer, last year’s return might serve as a reminder to the preparer—and to you—of key issues to avoid overlooking. Here are a few such examples:

  • Interest and dividends: Your tax return from the previous year should show which banks, mutual funds, and other financial organizations gave you 1099 forms. Make use of that list to ensure that you get 1099s from them again this year (unless you closed those accounts or sold the investments in the meantime).
  • Charitable deductions: Even if you did not get any acknowledgement from the organization, you may still deduct your donations provided you have a receipt, canceled check, or other documentation. Examine the list of organizations to whom you gave last year to determine whether you made comparable contributions this year.
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The Bottom Line

Whether you do your own taxes or pay someone to do them for you, organizing your documents ahead of time will save you time and, in the case of a professional preparer, money. The earlier you begin, the smoother the procedure should be, and the sooner you’ll be able to put the process behind you for another year.

What Is the Deadline for Filing a Tax Return?

Income tax returns are typically due on April 15 of the year after the tax year. However, since April 15 is a holiday in Washington, D.C. (Emancipation Day), most taxpayers have until April 18, 2022 to submit their 2021 tax returns. Due to the Patriots’ Day holiday in both states, taxpayers in Maine and Massachusetts have until April 19, 2022, to submit their returns.

In rare circumstances, the IRS may also extend the filing deadline. For example, owing to “exceptional circumstances relating to the pandemic,” the deadline for submitting 2020 tax returns was pushed up from April 15 to May 17, 2021. The deadline for filing tax returns has also been pushed out to May 17, 2021.

How Much Does Tax Preparation Cost?

According to a National Society of Accountants poll, the average cost for tax preparation using Form 1040 in 2020 was $220 when the standard deduction was utilized and $323 when deductions were itemized.

How Do I File an Extension With the IRS?

Every year, income tax returns are due on or around April 15th. If you are unable to file on time, use Form 4868 to request an automatic six-month extension. Remember that the extension only applies to submitting your tax return, not paying any taxes that you may owe. You must pay your taxes before the customary filing time to avoid fines and interest (usually April 15, but April 18, 2022, for tax year 2021).

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