For many people, filing taxes is synonymous with stress and inconvenience. But as the tax season inches closer, it’s essential to tackle this challenge head-on and focus on tax preparations. With the right mindset and approach, one can navigate the tax season more smartly and efficiently. Whether one is filing taxes independently or seeking professional help, having a structured plan can help avoid last-minute confusion and mistakes.
Gather Financial Documents
When it comes to filing taxes, one major source of worry is the lack of preparation or missing important documents in the face of a fast-approaching deadline. So, the key to a stress-free tax season is starting the tax filing preparations early on. A great starting point is to refer to a tax document checklist, which can help one easily gather the necessary documents and ensure that nothing is overlooked in the initial process.
Income Statement
These documents provide details about one’s earnings throughout the year. A W-2 form is one such document that employed individuals would need as it stands as proof of income received during the last tax year, and is issued by the individual’s employer. On the other hand, self-employed individuals would need to get a 1099 form from each of their clients. This form details a self-employed person’s earnings from their clientele.
To declare the income received from investment dividends or distributions (such as rent, stocks, bonds, etc.), individuals may require a Form 1099-DIV.
Receipts for Deductibles
One can receive tax deductions for any charities or donations they have made throughout the tax year. But to avail those deductions, one may need to gather the receipts of those donations.
Form 1098
This form is for homeowners and details the mortgage interests they have paid throughout the year. Mortgage payments also qualify for tax deductions, which is why it is important to include this document.
Form 1098-E
Those who have made payments towards their student loans can also claim deductions by including Form 1098-E, which lists the details of the interest paid during the course.
Personal Details
Apart from the documents, one would also need to keep all their personal details handy, such as their date of birth, Social Security number, and the dates of birth of their spouse and other dependents.
Also, before proceeding with the filing process, ensure that all personal information in all of the documents is up-to-date and accurate. Make sure no misspelled names or incorrect addresses are mentioned either.
Choose the Filing Method
All tax-paying individuals have the choice to file their own tax returns. That said, this option is best chosen by those who are experienced in the process or are well-versed in it. Thankfully, the IRS website offers several tools for individuals’ convenience and assistance, including free filing software for those who meet certain income criteria.
Plus, those filing taxes independently must also ensure that they are choosing the correct filing status. As per the IRS, there are five, including single, head of household, married filing jointly, married filing separately, and qualifying widow or widower with dependent child. The filing requirements, deductions, and credits differ for each status, which further emphasizes the importance of choosing it carefully.
Additionally, one of the most useful tax filing strategies for individuals is to keep the previous year’s tax returns at hand. This document can be quite helpful in understanding tax deductions and credits that one is eligible for, provided the guidelines remain the same.
If one is not comfortable with filing taxes independently, one can simply hire a professional, IRS-recognized tax preparer for it. For those with complicated tax situations, it is better to seek the help of professionals.
Keep Track of the Deadline
A crucial tax-filing mistake to avoid is missing the deadline, as it can lead to hefty penalties. A safe thing to do would be to set a tax deadline reminder as soon as the last filing date is announced for the year. Those who feel it won’t be possible to file taxes before the deadline can also file for an extension of time with IRS Form 4868 or through their tax preparer.
Contribute to Retirement Accounts
As the tax season starts approaching, it is recommended to start maximizing tax refunds. One simple way to do this is by contributing as many funds as possible to a retirement account such as the 401(k) or the IRA. Generally, the IRS also announces the maximum amount of contributions that individuals can make to their IRAs that are eligible for deductions.
Keep Track of Changes in Tax Laws
Tax laws can change from year to year. Therefore, staying updated with even the smallest of changes is crucial for accurate filing and getting the maximum possible returns. To stay informed about such changes, it is recommended that individuals closely follow official IRS updates. In the event of any new rules or guidelines, one can also consult a tax professional to understand how those might apply to their situation.
Choose Direct Deposits for Refunds
Opting for direct deposit is the fastest and most secure way to receive a tax refund. In fact, even the IRS recommends doing it. Choosing direct deposits over checks eliminates the risks of the latter getting lost or stolen or remaining uncashed. Plus, it also accelerates the refund process. The IRS also allows the splitting of the refund across multiple accounts.