What You Should Be Doing To Prepare For The Tax Season

What You Should Be Doing To Prepare For The Tax Season

Whether you are doing it for the first, second, or third time, filing your return is one hell of a job. The least you can do to make the job easier is to prepare for it. And for you to be well-prepared, you must start doing it well ahead of time. And in this article, we will be exploring some practical and easy ways you could prepare for the tax season.

While at it, we cannot emphasize enough how important this is. This is because the year is just being wrapped up, and we are getting into the New Year. This year, the IRS started accepting 2019 tax returns on January 27. Therefore, we do not have much time – as soon as it starts for 2020, you won’t notice until it’s already deadline day – that is April 15, 2021.

Here is what you should be doing to prepare for your taxes

• Firstly, look into your 2019 tax return

Let’s face it; tax filing is complicated. One year you get it right, and the next, you don’t. But the best way to, at least, give yourself a shot at doing it right is to look into your previous tax filings. Grab everything from last year’s files. They provide you with a good tip on how you can go about it this time around.

If you filed your taxes on your own, you would have this file in person. If you filed and threw the papers in the trash can, well, tough luck! But if you used a preparer, you will get the file with them, that is if you choose to use them again.

• Prepare your personal information

Taxpayers easily leave this out but is very key in deciding whether you get to claim some credits or not. You might know your own Social Security number, but not for all your dependents. Your tax preparer needs such information. If you miss these details, you might lose some of your money.

Besides dependents, there are many other details that are required but can be easily missed. Information like when you sold your property and so forth. You need the exact dates of when you bought and sold the property. And the amount you originally paid, as well as how much you received from the sale.

• Hire a tax preparer

I see many people try to file their own return and end up getting burned badly. It’s not a bad thing to try to do things by yourself. But some things, like filing your taxes, are best done by a professional. We encourage this to avoid disappointments on your part. More so, hiring a tax preparer maximizes your chances of early filing and getting good deductions.

A tax preparer saves you a lot of headaches. Imagine having to file several forms by yourself? Think of Form 1098 for your Mortgage interest, Form 1098-E for student loan interest, and tens of other forms! These are things you can easily forgo, but a tax preparer can do it right for you. And remember, by filing more forms for credits, it means you can save more on taxes.

Lastly on this, make sure you choose a registered tax preparer. They must have a Preparer Tax Identification Number (PTIN). And to know if they do, look them out on the IRS website.

• Find out your tax credits

We all want to pay less taxes, otherwise you wouldn’t be reading this. Tax credits are one way of reducing the amount of taxes we pay the IRS. But to claim, you got to first know about them and, secondly, have the necessary paperwork. For example, to claim the dependent care tax credit, you need proof of payments to your child-care provider. So, you may want to give him/her a call for the total you paid. More so, you need their tax ID.

If you are working with a tax preparer, they will help you identify many tax credits. They also help you find the necessary paperwork. However, you always have to hire a tax preparer some months before the filing deadline, so you have time to gather the paperwork.

• Gather all your receipts

Receipt gathering is to help you choose between a standard or itemized deduction. Remember, you are doing this to save the most on your taxes. Therefore, the receipts will guide you on which deduction method saves you the most money. For 2020, the standard deduction will be $12,400 for single taxpayers and $24,800 for married couples filing jointly.

Therefore, compare receipts qualifying for a write-off (multiplied by the tax rate) with the amount in your standard deduction above. If the receipts’ write-off exceeds the standard deduction, then you might go for itemized deductions. And if not, stay on the standard deduction.

For example, if your write-offs add to $20,000 and your gross income for the year is $85,000, your taxable income would be $65,000. And, your tax savings would be $20,000 multiplied by the tax rate (22% for 2020/21 taxes). That will be $4,400 in total tax savings through the deductions. But this amount is less than the standard deduction. So, in this case, you are better off choosing the standard deduction.

Again, your tax preparer will advise which receipts you must lookup for itemized deductions. Examples are medical expenses uncovered by health insurance, interest on mortgage of $750,000 or less, charitable contributions, and gambling losses. There are many other qualifying receipts.

• Understand your State Tax Rules

Finally, tax rules that your State set could take a slight detour from the IRS guidelines. Therefore, it is in your best interest to understand these before filing your tax return. For example, the IRS won’t penalize you for not having health insurance in 2019. But some jurisdictions like Massachusetts, New Jersey, and Washington, D.C., will impose penalties if you don’t have coverage.

If you need help with tax filing, contact us. We have been helping several individuals and small businesses correctly file their taxes. Our goal is to help businesses save money through taxes and grow to build generational wealth. Get in touch! And we wish you a splendid festive season!