Many people file their taxes early in the year, then walk away and don’t think about taxes again until the new year rolls around. And while this method can work, it’s worth noting that over half of all Americans find filing taxes a stressful process. But it doesn’t have to be that way.
With a little bit of planning and preparedness, filing your taxes can be simple. There are a few things you can do to prepare for the upcoming year that will take the stress out of filing taxes.
- Determine if you need to file taxes: While the vast majority of people must file taxes every year, there are some exceptions, but it often depends on your age, income, filing status, dependent status, and income. You can look up these restrictions, or you can also consult with a CPA or tax expert to help you determine whether you need to file taxes.
- Gather and review your documents: If you have filed taxes before, you know that you need to provide some documentation. This is true whether you decide to do your taxes using software or whether you hire a professional. You should receive everything you need to file taxes by the end of January. If you haven’t received something by then, you should call your employer or the business that owes you documentation to determine how to get the needed forms. Common forms required for tax filings include:
- Form W-2 from your employer.
- Any 1099 forms, which are issued for dividend payments, interest earnings, and non-employee compensation paid to independent contractors. If you are waiting on a 1099-B from a broker, these forms aren’t usually sent out until mid-February.
- Form 1098 for reporting mortgage interest you paid.
- Form 1098-E for student loan interest paid.
- Form W-2G for some large gambling winnings.
- Documentation for charitable contributions
In addition to these forms, you will also want to collect receipts if you plan to take an itemized deduction. If you are uncertain whether an itemized deduction or the standard deduction will benefit you more, it may be worth saving your receipts. With them, you can calculate the difference between your taxes when taking the standard deduction versus the itemized deduction.
- Review any tax changes for the new year: The Internal Revenue Service (IRS) often experiences policies or legislation changes that impact how one files taxes. In addition, the standard deduction amount and other tax credit amounts may change. These seemingly small changes can greatly impact your overall tax liability. The IRS issues guidance about any updates or changes that taxpayers need to know. Reviewing this guidance and understanding how it may impact your unique filing details is always a good idea.
- Determine your filing status: Your filing status helps you determine what you need to file, your standard deduction, eligibility for certain credits, and how much you owe in taxes. Most people’s filing status doesn’t change from year to year. But if you had a change in marital status, had a baby, or had dependent children that are now filing separately, it will impact your filing status.
There are five different filing statuses:
- Single: This status is for those who are unmarried, divorced, or legally separated. It will also apply to anyone who was widowed before the tax year.
- Married filing jointly: This status is for married filers who agree to file a joint return. In most instances, married couples benefit from filing jointly.
- Married filing separately: This status is for couples that don’t agree to file jointly, as it can benefit certain couples.
- Head of household: To be considered the head of household, one must have paid for more than half the household expenses for the year, be unmarried, and have at least one qualifying child or dependant.
- Qualifying widow: Qualifying widow(er)s have a spouse that died, and the widow(er) did not remarry in the same tax year. The qualifying widow(er) filing status can be claimed for up to two years after the spouse’s death if they are unmarried and living with a qualifying dependent.
- Choose how you want to file: There are multiple ways to file your taxes. First, there are many software programs available to help you complete your taxes on your own and file them electronically. You can also print off paper returns and mail them to the IRS. And finally, you can work with an accountant or tax professional to have them done for you, which is often the best option to ensure they are done correctly and minimize your chances of being audited.
Taxes can be complex and stressful. Contact Parker Business Consulting today to learn more about the benefits of working with an accountant to simplify your tax filing process!
Parker Business Consulting & Accounting, P.C. is a unique firm with more than a combined 75 years of experience in private industry, coupled with a strong background in public accounting. This combination enables us to provide valuable assistance based on direct experience with many of our clients’ same issues.