With tax season right around the corner, it’s important to start preparing your taxes now. After all, early planning and organization can eliminate most of the stress that comes with filing taxes.
With this in mind, here are five steps to simplify tax preparations and bring you peace of mind.
1. Choose Your Tax Prep Method
The first step is to decide whether you want to file your taxes by yourself or hire a tax professional.
Tax software offers a step-by-step walkthrough that can help you to figure out your income, expenses, deductions, and tax liability.
On the other hand, hiring a tax expert provides a hands-off solution. With a professional tax prep service, you don’t have to know about the recent tax law changes. Just make sure to do some research before you pick a provider!
2. Gather the Necessary Tax Forms
Before you get started, you’ll want to track down copies of any financial documents you might need. For personal returns, you might have W2 forms for each job. You may also have forms for Social Security benefits, interest on a mortgage, dividends for investments, income from contract work, and so forth.
Other important forms include:
- Form 1095A for health care coverage
- Form 1098s for mortgage interest, tuition payments, and student loan interest payments
- Form W-G for gambling winnings
If you run a small business, you may need forms such as:
- Schedule C or 1099-Misc for a sole proprietorship
- Form 1120 for a corporation
- Form 1120S for an S corporation
- Form 1065 for a partnership
It’s also important to note that you’ll likely need a copy of last year’s returns for both personal and business returns.
3. Collect Receipts and Statements
Collect and organize your receipts from the year. We recommend separating the receipts into different colored folders.
For example, you may choose to put all of your income documents into a green folder and all of your business expenses in a yellow one.
If you plan to itemize deductions on your personal return, you’ll need to prepare additional documents and organize them. These include records of medical expenses that weren’t covered by insurance, bank and credit card statements, receipts for charitable donations, property tax records, and job or investment-related expenses.
4. Gather Your Personal Information
Along with your Social Security number (SSN), collect the numbers for the dependents you’ll claim on your return. Collect the addresses of rental or vacation properties you own.
If you sold or purchased property last year, you’ll need to provide the details of the transaction. Usually, these can be found on your settlement statement from your title company or real estate attorney.
5. Research Relevant Deadlines
Tax deadlines vary from state to state, so it’s essential to know when your specific tax deadline is.
If you need additional time to file your taxes, you can file for a six-month extension using Form 4868 for personal returns and Form 7004 for business returns.
By getting this information together early in the year, you can get a jump start on your taxes and reduce frustrations when April rolls around!
This article is for information, illustrative and entertainment purposes only and does not purport to show actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular investment action.
