Prepare Yourself for Tax Season in 5 Steps

by | Nov 20, 2019 | Financial Featured

Tax season is definitely one of the most stressful times of year. Filing taxes isn’t exactly the easiest, most consumer-friendly process. You’ve got to assemble lots of different financial or legal records, set aside a whole portion of your day when you’ve got a busy schedule, and navigate complicated IRS tax forms. It’s no wonder that lots of people put off paying their taxes until last-minute—but unfortunately, that causes a lot of people to file their taxes late, which incurs IRS penalties.

You can make tax season stress-free if you just prepare yourself ahead of time. Follow these 5 steps:

1.      Have Your Information Returns Ready

You can’t file your tax return without your Form W-2. As you probably know—unless it’s your first time filing taxes—Form W-2 summarizes the income you earned during the tax year. You’ll get a separate Form W-2 for each of the employers you worked for during the tax year. Your employer(s) will provide you with your W-2 by the end of January. If you lose your W-2, then you can just get your W-2 online—no sweat.

There are some other important information returns you may need, depending on your situation:

  • Form 1099s: If you earned income from cancellation of debt, dividends, interest, or independent contracts, your income may be summarized on a variety of Form 1099s.
  • Form 1098s: There are various Form 1098s that report mortgage interest.
  • Form W-2Gs: Form W-2Gs report different kinds of gambling winnings.

2.      Get Your Personal Information Ready

There are other types of information you’ll need to file your taxes. You’ll need your social security number, and you’ll also need the social security numbers each of the dependents you’re claiming. If you own multiple properties, you may need the addresses of each, as well as all the information about the purchase.

If you’re an investor, you should also have your stock portfolio or investment portfolio on hand. You may need to report earnings on your dividends or on profits gained if you sold any of your securities during the tax year. It helps to have an investment app that can track all your trades for the year.

3.      Get Your Receipts Ready

When you file your taxes, you’re able to claim tax deductions that keep a percentage of your income from being taxed. You can either choose the standard deduction—which is a predetermined amount depending on your tax bracket—or you could choose to itemize your deductions. There are lots of expenses you can deduct from your taxes, from travel expenses for business to charitable contributions. If you think these expenses exceed the amount of your standard deduction, you could choose to itemize.

If you’re going to itemize, you need to keep track of all your receipts for deductible transactions. Use an expense-tracking app throughout the year to keep easy-to-find records of any transaction that’s tax deductible.

4.      Choose a Preparer (Online or Schedule an In-Person Appointment)

Most Americans choose to file their taxes through a third party, like TurboTax or TaxAct. These tax professionals usually have intuitive websites that enable you to file your taxes online, and some of them even have offices in which you can schedule an in-person appointment.

Shop around the different tax preparation companies and find the one that’s right for you. If you’re going to schedule an appointment, be sure to do so well in advance of tax time—tax preparers get incredibly busy as it gets closer to the tax deadline and you might have a difficult time getting an appointment if you wait too long to schedule one.

5.      Prepare to Pay Owed Taxes

There’s a likelihood that you may owe some taxes to the IRS. This may catch you by surprise—you may not be prepared to write a check to the IRS on the day that you file your taxes. That’s why it’s important to budget well in advance of tax season. Put some money away in a savings account and have it ready to go in case you need to pay the IRS.

One final thing to note is that you can always request an extension to file your taxes if you feel like you won’t be able to file on time. You’ll have to file an extension in advance, so be mindful of that in the early months of the year.

If you follow these 5 steps, you’ll be able to enjoy a much less stressful tax season. Getting ahead on your taxes is one of the important ways to take charge of your finances.

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