One in four American adults have no idea how their taxes get determined. For example, do you know how your tax bracket is determined and how it impacts how much you owe? If not, then it’s vital to get informed. If you’re not doing your taxes correctly, you could face not only criminal charges, but financial consequences, too. On the contrary, filling out your tax forms efficiently can save you money and keep you in good standing with the IRS. To ensure you fill out your tax forms correctly, you need to prepare for tax season well in advance. Learn everything you need to know about filing your taxes like a pro in this post.
Suggested Reading: https://www.anthonygaenzle.com/the-8-top-bookkeeping-mistakes-made-by-small-businesses/
1. Create an Income and Expenses Report
Filing your taxes gives the government a good idea of how much you earned and how much you spent all year long. That’s why the most basic form of tax preparation involves creating an income and expense report. You can make this as simple or complicated as it needs to be. In a nutshell, you should open up a spreadsheet, create a table, and then document every income stream and expense you experience throughout the year. If you do this successfully, then you’ll have a much easier time filing your taxes when the time comes.
2. Compile and Secure Important Documents
To prepare for tax season, you need to compile and secure your important documents. That’s because you’ll need to have important information, like your Social Security number, as readily available as you do your tax returns. You’ll also need the information of your dependents, too.
Rather than wasting time searching your house for these important documents, it’s a good idea to prepare for tax season by creating a binder that holds your most valuable documents. Inside this file, you should secure identifying documents for you and your dependents, among them:
- Birth certificates
- Social Security cards
- Passports
Once you have this file, you’ll be able to fill out your tax returns accurately. This file won’t only come in handy during tax time, though. You should keep it compiled all year round to help you whenever you need those important documents.
Suggested Reading: https://www.anthonygaenzle.com/budgeting-freelance/
3. File Those Receipts and Pay Stubs
The IRS operates on the mantra “trust but verify.” While you already filled out forms and told the IRS how much you made and spent, it’s important to back those statements up with hard proof. So hold onto your receipts, pay stubs, or bank statements that prove what you stated on your tax returns. Do you think saving those documents is just overkill? Think again! If you ever get audited, then you’ll have to submit that proof to the IRS. If you already have those documents together, then the situation will be a whole lot easier.
4. Estimate Your Taxes Each Quarter
Did you know that the IRS recommends paying quarterly taxes if you know you’ll owe a lot come tax time? This type of arrangement can help you avoid a massive bill once a year. You’ll also be able to break up what might be a huge, complicated project into four different periods and four different bills. So, what happens if you end up overpaying the IRS due to estimating your taxes? The good news is that you’ll get that money back if you overpay.
Suggested Reading: https://www.anthonygaenzle.com/the-benefits-of-mobile-banking-for-small-business/
5. Research Deductibles and Credits
Next, it’s time for the fun part! You need to research potential deductibles and credits that apply to your financial situation. These deductibles and credits are really important because each will save you money. Even if you’re used to owing the IRS thousands of dollars, these credits and deductibles can help you offset how much you owe.
6. Set Up a Tax Payment Plan
So, what happens if you file your taxes and get hit with a totally unexpected and massive tax bill? First, don’t panic! If you failed to prepare for tax season last year, then you likely won’t have enough funds to cover your tax bill. That’s not a huge problem for the IRS, and they will work with you if you stay in communication with them.
For your first step, make a payment toward the taxes. Even if it’s very small, the point is that you’re showing the IRS that you’re willing to pay them. Next, you should request a temporary delay from the IRS. This will give you the time you need to pay off your bill.
Suggested Reading: https://www.anthonygaenzle.com/5-ways-to-reduce-small-business-startup-tax/
7. Research Your Options
Research your options for filing your taxes. Many people make the mistake of attempting to do their taxes themselves but doing so ends up costing them money and time. It can lead to a lot of frustration, too. It’s a good idea to research tax services in your area if you struggle with your taxes each year. If you wait until the last minute, then there’s a good chance that the tax services in your area will be busy and booked up. On top of that, they may charge you more money for requesting their services during their busiest season. If you’re looking to get a good deal, it’s a much better idea to hire a tax service way in advance of tax season. If you work with them throughout the year, then you’ll be in a much better position to file your taxes with ease when tax day comes.
8. Get Your Paperwork or Electronic Service Ready
Do you prefer to file your taxes by hand or online? This question wasn’t as important in the past as it is in 2021. According to the IRS, electronic tax returns get processed much faster than those done by hand. Paper taxes take longer to mail, they’re more difficult to process by IRS agents, and they’re more susceptible to damage. What would you do if your tax documents somehow got destroyed or lost in the mail? That’s not a situation you want to face! To avoid the worst, make copies of your documents if you plan on using snail mail.
If you’re utilizing tax relief services, then make sure to get that prepared in advance, too. Don’t wait until the last minute to download the right software or visit your tax professional’s website. Make sure you understand the company’s rules, guarantees, and services. Otherwise, you may end up needing to look for a better service midway through tax season.
Suggested Reading: https://www.anthonygaenzle.com/small-business-finances/
9. Implement a Plan for the Future
If you start implementing the tips above to help you prepare for tax season, then you’ll be amazed at how much faster and easier filing your taxes will feel. While it’s never fun to actually send off money to the IRS, it is a relief to have everything in order. Are you ready to take things to the next level? If so, then you should start implementing a plan for the future. Creating a plan now can ensure that you can pay the IRS in full without a payment plan come tax time next year!
How can you accomplish such a feat? Formulate and implement a long-term plan that involves withholding a percentage of your income or earnings each time you receive a check. Place all those earnings in a separate bank account and do not take any money out unless it’s a dire emergency. When it’s time to file your taxes, you can rest assured knowing that you can foot the bill. Even better, you might actually have money left over that you can use as you wish!
Are You Prepared for Tax Season?
Are you prepared for tax season? You should ask yourself this question throughout the year. If you wait until the last minute, you’re sure to end up making a mistake or costing yourself money. If you’re tired of being in a position where you owe the IRS thousands of dollars, then you’ve got to make a change. Start utilizing the tips above to prepare yourself for tax season well in advance of it. If you do things right, then you may just end up paying off the IRS at the same time as you file!
- 9 Tips to Prepare You for Tax Season - October 16, 2021
