As tax season approaches, you may have questions about filing your federal, state and business taxes. Below are a few tips to help you get prepared.
An accountant’s time is money, so the longer it takes him to sort through your disorganized records, the more he will charge you.
Collecting your tax documents is the first step toward filing your taxes. Watch your mail between January or February.
If you are a full-time employee, you will receive a Form W-2 detailing your earnings, as well as which taxes were withheld. If you work freelance or on a contract, you may receive a Form 1099-NEC detailing what you earned.
You may also receive documents showing dividends or interest earned on investments (Forms 1099-DIV or 1099-INT, for example), or student loan interest you’ve paid (Form 1098-E).
If you’re a college student (or you have a dependent who is), you’ll receive a Form 1098-T that shows how much you paid in tuition, as well as any amounts you received from grants or fellowships, to help you figure out deductions and credits related to education expenses.
Check last year’s tax return
It’s not like you’re starting from scratch every year. Reviewing last year’s tax return can help you figure out what you need to do this year.
Use it to ensure you don’t miss any important things not mentioned above, such as:
- Documents showing medical, educational, childcare, or other expenses, especially if you’re itemizing
- Social Security benefits
- Rental property income and expense
- Statements regarding investments or mortgage interest payments
Know how filing status and deductions
Did you get divorced or lose someone this past year? If you have had changes within your life, it’s good to know what your filing status and deductions are.
Plus, there will be less paperwork if you take the standard deduction, which is $12,550 for single filers and $25,100 for joint filers this year.
If you are 65 or older, the standard deduction is $1,350 higher per person for married couples filing jointly; so if you and your spouse are both 65 or older, the standard deduction is $2,700 more. If your filing status is single and you’re 65 or older, you get an additional $1,700 for your standard deduction.
It doesn’t make sense to go through the time and effort to itemize if your itemized deductions are less than the standard deduction.
If you do plan to itemize deductions, check your checkbook, credit card statements, and other receipts for medical expenses, charitable contributions, and other expenses throughout the year if you have not kept within another log.
Decide how to file your tax return
There are several options for preparing and filing your tax return.
- IRS Free File lets you prepare and file your federal income tax online using guided tax preparation, at an IRS partner site or Free File Fillable Forms. It’s safe, easy and no cost to you for a federal return.
- If your adjusted gross income is higher than that limit, the IRS has electronic versions of the paper forms that will do the math for you, but they offer only basic guidance and won’t give you the same kind of help figuring out which deductions or credits you might be able to take.
- Tax preparation software such as Turbo Tax, Tax Cut or HR Block Online are common tools that have been out there for many years: If you want a bit more guidance, you can pay a fee to use these online tools. They’ll walk you through how to prepare your tax return, and help you figure out any deductions or credits you might be eligible for.
- You can consult a tax preparation firm or an accountant if you need one-on-one assistance. Just be sure the person you work with is trustworthy. This person will have access to a lot of sensitive information, so choose carefully.
Take your time
You might be overwhelmed with all of the lifestyle changes happening, from losing a love one, to being unemployed, to relocating to a different state.
You shouldn’t stress yourself out. When you feel you cannot prepare the return on your own, hire someone to assist you. It’s crucial that you review everything carefully before you file, even if you hire an accountant.