It may feel like you just finalized last year’s taxes (and, if you filed an extension, you did!), but tax time is upon us again. Although taking care of this annual financial task can seem overwhelming, it doesn’t have to be. You just need to do some legwork in advance. We’ll show you how to prepare for tax season, so you can take care of it quickly and move on with life.
Decide How to File
First things first -- you need to decide how you’ll file your taxes. Feeling confident enough to DIY it? Or, would you rather hire a professional? There’s no judgment here, but you’ll want to get this squared away early. If you’re doing it yourself, you’ll have to choose a software. If you’re enlisting the help of an accountant, you’ll have to select one. Remember: both routes take some research, and many tax professionals fill their dance cards early in the season.
Review Last Year’s Tax Return
Believe it or not, last year’s tax return can help you get a jump on preparing for this one. Note how you filed it. If it went well, why not use the same software or service provider? You can also see which employers, banks, and investment institutions you were affiliated with last year. If nothing’s changed, make sure you have the appropriate tax documentation from those same sources this year. If there has been a change, take note of which organizations you need to hear from.
Consider Your Situation
Circumstances in your life can have a significant impact on your taxes. Take note of any major changes as they could alter your tax filing status (single, married, head of household, etc.). Some examples of potential changes include:
adding a dependent.
Learn About Tax Changes
Tax law changes every year. Sometimes, the change works in your favor, and sometimes not. Either way, it’s important to be aware of what’s different so that you can file your taxes accurately (and to your greatest benefit).
Gather Your Information
Whether you file your taxes on your own or use a service, you’ll have to gather a laundry list of information and documentation to get the job done. You’ll need personal information, including social security numbers for you, your spouse, and any dependents. You’ll also need documentation showing how much money you made during the year and how much you spent in key categories. If you're organized, filing your taxes will be so much easier!
Your income is the money you earned or collected. Potential income sources include, but aren’t limited to:
Wages from an employer (documented by Form W2)
Earnings from freelance clients (documented by Form 1099)
Unemployment (documented by Form 1099-G)
Social security (documented by Form SSA-1099)
Investments (documented by Form 1099-INT)
Sale of real estate (documented by Form 1099-S)
Pro Tip: Keep track of all income sources throughout the year. You may have to report the income even if you don’t receive a tax document.
Your Expenses and Spending
The Internal Revenue Service (IRS) doesn’t care about all of your spending. But, if you keep track of and document certain expenses, you may be able to reduce your tax liability or increase your refund via tax credits and deductions. A tax credit reduces the overall amount of tax you’ll owe. A deduction reduces your taxable income. Potential expenses to document include, but aren’t limited to:
Student loan interest
Mortgage interest or points paid
Child care costs
Higher education costs
Contributions to an Individual Retirement Account (IRA) or Medical Savings Account (MSA)
Self-employment benefits (health insurance and retirement savings)
Other business expenses
Losses due to theft
Pro Tip: Under current tax law, many taxpayers will see the greatest benefit by taking the standard deduction. However, your situation may differ. Your tax software or accountant will request and analyze your pertinent financial information to choose the best route for you.
Avoid Tax Scams
Tax time brings out the worst scammers. Be prepared to receive (and ignore!) fraudulent emails, text messages, and calls from people claiming to be from the IRS. The IRS won’t communicate with you that way. They send all correspondence through the mail.
You should also beware of tax preparers who claim that they can get you a certain tax refund. They can’t know that without reviewing your numbers and documentation. If a tax professional says something that sounds too good to be true, run!
Have a Plan
When the numbers have been crunched, you’re going to owe the IRS or be due a refund. You should have a plan for either scenario. If you owe money, how will you cover the bill? If you’re getting a refund, how will you put it to best use? Preparing your taxes early in the season gives you ample time to answer these questions.
Think About Next Year - and Beyond
Did you have too much tax taken out of your paycheck throughout the year? Not enough? If so, now’s a great time to update your employer’s withholding by submitting an updated Form W4. That way, your cash flow and end-of-year tax liability better align with your personal situation. It’s also the perfect opportunity to shore up other aspects of your financial life. For example, if you experienced a major change, you may need to name new beneficiaries for your insurance and investment accounts.
How Rapidly Can Help
Rapidly is an online platform that connects you with qualified tax professionals from a vast provider network. Through the platform, you can:
Search for and select a tax professional
File this year’s taxes and prepare for next
Get expert guidance on complex tax issues like liens and garnishments
You can get started today for free. The best part? Everything is done virtually so that you can take care of your taxes from the comfort of home.
Tax time is here! Even though this season is daunting for many, it doesn’t have to be for you. If you follow these steps (and ask for help when needed), you’ll take care of your taxes like a pro (whether you use one or not)!
Don’t forget to consult our handy checklist as you get ready for tax season!