For many people, tax season is a dreaded burden. However, it doesn’t have to be a stressful experience. You can make it easier to file your taxes on time without complications by preparing well ahead of the tax filing deadline. When you prepare early for the tax season, it’s easier to ensure you’ve gathered all the necessary documents and pinpointed every applicable deduction. By avoiding the last-minute rush during tax season, you can save yourself valuable time and money. Here are the critical steps to follow before the tax season begins.
Steps to Prepare for Tax Season
You might be surprised by the time you save by organizing your tax information in advance. Here are the simple steps to help plan and prepare for tax season.
1. Gather personal information
The most crucial information you should start collecting includes tax documents from banks, employers, and other financial institutions. Also, ensure you have the Social Security numbers, birth dates, and health insurance documents for yourself, your family, and any dependents.
2. Determine how you’ll file
Don’t wait until the last minute to determine who will file your taxes; it could cost you. Many CPAs will charge you more as the deadline approaches, and it may be challenging to find a tax professional with availability. You should decide well in advance whether you’re filing taxes on your own, using a software program, or will hire a CPA to help you out.
You can file your taxes by yourself if they are not complicated. Still, it’s advisable to hire a professional when you have experienced significant life changes over the year, such as becoming a homeowner, welcoming a new child, getting married, or starting a business. A professional will ensure that all your bases are covered, and they can identify opportunities to minimize your tax bill or correct mistakes that would have led to hefty penalties or late fees.
3. Collect your income documents
You can’t submit your taxes without information about your earnings over the past year. Ensure that you receive your W2 form and other necessary documents from your employer. You need the Form 1099-R documents and any deductible business expenses if you run a home business.
You may be required to produce other information on your income, including your IRA/pension distributions, Social Security benefits, investment income, and any earnings from side businesses or farming.
5. Determine your credits and deductions
Who wouldn’t want to save money on their tax bill? The IRS offers numerous tax credits and deductions that you can claim to lower your tax burden and save money. You may be able to adjust your taxable income based on mortgage points, student loan interest, the Child and Dependent Care Credit, moving expenses, and numerous other items. Collecting and organizing documents related to your spending throughout the year may reveal opportunities to reduce your tax bill or even increase the amount of your refund check.
To determine which credits and deductions you are eligible for, you may need to review receipts or documents related to:
- Education costs
- Charitable donations
- Childcare costs
- Energy credits
- Paid home mortgage interest and points
As you research opportunities to save money on your taxes, ensure you understand the specific requirements of each credit and deduction. You may be required to fill out additional forms depending on the type of credit and deduction.
Preparation is Key
You may only realize how much work goes into filing taxes once you begin preparing for tax season. If you wait too long, you risk running into delays or complications that could cause issues with the IRS. Preparing before the deadline simplifies the filing process and allows you to mitigate the last-minute chaos.