Why Do You Need a Tax Preparation Checklist?
Many taxpayers do not know everything they must include on their tax returns. For this reason, many file returns with missing information. The IRS may reject returns with missing information. If it happens to you, you may miss the filing deadline trying to gather everything requested by the IRS. Therefore, you must use a tax prep checklist to avoid all this.
A tax preparation checklist, or simply a tax prep checklist, is a guide containing all the information required to file a tax return. An example of this information is your wage information — for example, W-2 Forms. If you have sold a property during the tax year, you will also be reminded to file the necessary forms by your tax prep checklist.
Depending on your filing status, where you earn your income, and how you spend it, you should have ticked many boxes on the tax prep checklist before compiling your federal return. Please note that you will not tick all the boxes on the tax prep checklist because the one you will download from your tax professional or from us, is a generic one designed to cater to everyone. Your job is to go through that list and read why each piece of information is needed. For example, where it says SSA-1099, it will tell you that it is information for social security benefits received. So, if you received them during the year, you will have to supply this information on your return.
Therefore, the final documents or information you gather, as guided by the tax prep checklist, could be different from anyone else’s. This is because we all have different filing statuses and earn money differently. More so, you all did different things with your money during the year. Some of you donated cash, while some donated household items and clothes. Some of you do have business trips and mileage expenses. These all require different types of paperwork and information.
Nevertheless, why do you need this tax preparation checklist? See below.
To save money
Yes, a tax prep checklist saves you money. How? When you have it, you can orderly gather all tax documents. We are human, and we tend to forget one or more things without a checklist. So, someone with this list is guided enough to gather all the documents they need to claim itemized deductions, tax credits, and some tax write-offs. More so, this list helps you file taxes on time, avoiding potential late filing and late payment penalties. In the end, it saves you money by reducing your taxable income or increasing your refund.
Early refund
Taxpayers that use a tax prep checklist are organized. And when organized, you quickly gather everything required to file a return, such as personal information and supporting documents. That way, you can file your return as early as February every year. The earlier you file your return, the earlier you also get your tax refund. An early refund can help ease financial challenges. That is like an extra cash injection in the middle of the year. We all can use something liken that!
It helps you decide between itemizing or taking the standard deduction
That’s right, for some taxpayers, there could be a very thin line between choosing the standard deduction and itemized deductions. If you do not have sufficient information, you can easily make the wrong choice. For example, you could have enough items that qualify to be itemized and save you more than what you would save if you chose the standard deduction. But because you have not gathered any paperwork and thus, do not have accurate numbers, you may select the standard deduction.
But if you have your checklist and are guided enough to track all your income and expenses, you may find enough ground to choose to itemize and further reduce your taxable income.
A big boost for financial literacy
More than 55 percent of Americans live from paycheck to paycheck. And, according to the LendingClub, 40 percent of those with annual incomes over $100,000 live paycheck-to-paycheck, including 12 percent struggling to pay their bills.
The above statistics are a startling reminder of the lack of financial literacy among us. We do not know how to budget. But when you start using a tax prep checklist, you are reminded to gather every document with information about your income and expenses during the tax year. This information allows you to study how you have been spending your money. In the end, you can tell how much you spent on gas, medication, food, travel, vacation, etc. So, while in the process of looking for tax write-offs, the bills and invoices in front of you remind you of how good or bad you have been with your money.
If that really hits home, you may eventually start budgeting and allocating money towards different items. You will no longer just spend for the sake of it, but everything will be carefully planned out to achieve two things. The first is to reduce the money you spend and save more. Secondly, you would want to start tax planning to reduce your tax bill even more next year. As such, this results in you saving more money and building wealth through financial literacy.
The Bottom Line
In the end, we all need to be organized around taxes. A tax preparation checklist is a good starting point. Using it means reducing the chances of sidelining anything that could benefit you on taxes. If you have not had an opportunity to use a tax prep checklist, start doing so now. You will be amazed how much it will help you improve your tax filing. Download it HERE only for $1.
People have also asked the following
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Why is a tax preparation checklist important?
Tax preparation is important. To do it properly, you need to prepare to file on time and use a tax preparation checklist. This checklist guides and helps you gather relevant documents on time and accurately.
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What do you need to prepare your taxes?
To prepare your taxes, you need the proper documents and personal information. A tax preparation checklist helps you gather all required documents before filing a return. Examples of documents required are Form W-2s and proof of other incomes besides wage income.
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What are the three benefits of completing your tax paperwork yourself?
Filing your own taxes saves you money because you do not pay anyone to do it on your behalf. It also helps increase your tax knowledge and may result in you getting an early refund. However, it is recommended to hire a tax pro to complete your tax paperwork, especially if you have more than one source of income.
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Why should I use a professional tax preparer?
A professional tax preparer knows the tax code. They help you avoid penalties, increase your refund, and save you time by taking up the work you could have been required to do by yourself.
