Depending on your filing status, tax season can be stressful or exciting. A W-2 employee may look forward to receiving their tax payouts, while a business owner will dread the huge sums of tax dollars going out.
Whatever category you fall under, you’ll still need to prepare for the tax-filing season so that you don’t run into any major hiccups that could get you in trouble with the IRS.
Read on to learn the five tips to prepare for tax season.
Choose Between CPA or DIY:
An important decision you’ll need to make when preparing for tax season is whether to hire a certified public accountant or file the taxes yourself.
While online tax software can suffice for simple W-2 forms, if you have a complicated return, it’s best to seek the help of a CPA. For example, if you operate a small business, are an investor, or are a freelancer, it’s a good idea to have a CPA help.
Trusted providers like MI Tax CPA can help you navigate tax season by maximizing deductions, developing tax-planning strategies, and preventing IRS audits.
Gather Your Financial Records and Organize Your Tax Documents:
Before you begin, you’ll need to organize all your important documents and paperwork, making the filing process easier and faster. Start by using your last year’s return as a starting point.
You can retrieve your return by logging into your tax software provider or requesting a copy from the IRS online portal.
You’ll want to know the required tax forms based on your filing status. Here are a few common tax forms to be aware of.
- Employees: W-2 form
- Freelancers and self-employed: 1099-K and 1099-NEC
- Unemployed people: 1099-G
- Investors: Schedule K-1, 1099-MISC, 1099-S, 1099-DIV and 1099-INT
Make the Deadline or File for an Extension:
The deadline can be a stressful time that looms over you. Every year, taxes must be filed by the April 18th deadline. Even if you can’t pay the full amount, you can pay as much as possible. This helps to reduce the amount that you’ll be penalized.
If you need more time to file your IRS, you can request an extension up to October 15th. However, this still requires you to estimate the amount of tax owed and pay that amount by the April deadline to avoid interest and penalties.
Familiarize Yourself with Popular Tax Credits and Deductions:
There are hundreds of credits and deductions that are available. It’s best to work with a CPA since they know all the deductions, ensuring you don’t miss out on huge savings. Some of the most popular deductions and credits are:
- Child tax credit: Get up to $2000 per child or $1500 in a refund.
- Lifetime learning credit: You can receive up to $2000 in credit for school fees and tuition.
- Charitable donation deductions: Donations can be deducted when properly itemized. This includes furniture, clothes, cars, or anything else.
Review Changes in Tax Laws:
Tax laws are not permanent. They keep changing. Hence the onus is on you to stay updated with the latest developments. Here I write some essential tips for reviewing changes in tax laws:
- Stay Informed: Stay updated about any recent changes in tax laws around you. You can browse the official websites of the Internal Revenue Service (IRS) and other relevant tax authorities. In case you want, you can also subscribe to tax newsletters or alerts and consult with reputable tax professionals.
- Understand the Impact: If you notice any updates in the tax laws, read it carefully and try to estimate the changes. It might take you some time to understand how they may affect your tax situation. You may also want to consult with a CA or Tax professional about it. You can use tax planning tools too.
- Review Your Tax Strategies: In case the tax laws change, you may need to review and adjust your tax strategies. For instance, you may notice some deductions or credits have been modified. In that case, you may can alter your financial plan accordingly. It’s prudent to assess the impact of tax law and make necessary adjustments to optimize your tax situation.
- Seek Professional Help if Needed: If you feel that you are unable to assess your taxation properly, feel free to seek professional help. Tax laws can be complex, and it is best to consult someone experienced who can guide you about it. They can provide expert guidance and help you navigate the complexities of tax laws to ensure accurate preparation and compliance with the updated regulations.
- Keep Documentation: Last but not least, you must not forget to jot down the changes in your taxation. Keep all the documentation safe somewhere. In case you face audits or inquiries in the future, you can show these documents as proof.
Wrapping It Up:
For many, filing taxes can be stressful. It can feel overwhelming, especially with so many complicated tax laws and codes you may not understand. Start early and consult with a tax professional to ensure you accurately file your taxes.