The new year may have just started, but that means one thing: tax season is just around the corner. While this is usually a stressful time for many Americans, it doesn’t have to be. With just a little preparation and forethought, you can avoid a lot of stress and many headaches, so that when April 15 rolls around, you are ready. Whether you are filing them yourself using an online program or working with an accountant, here’s how you can prepare for tax season.
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Gather All Pertinent Information
Whether you are filing taxes yourself or using a tax preparer, it’s a good idea to locate your social security card and/or tax ID card. When meeting with your tax preparer, it’s better to be overprepared, than under. Additionally, bring your primary form of identification and last year’s tax return before the appointment.
If you have any dependents (people who depend on you for financial support), gather their social security and/or tax ID numbers, their dates of birth, any childcare payment records, and any alimony payments.
Track Your Income
To make the process of filing your taxes easy, it’s important to keep track of your income throughout the year. Your Form W-2 is for wages/salary, federal and state tax withholding, tips, and earned income credit. Your employer should give this to you by January 31st so you have plenty of time to file your taxes. There are also various 1099 forms that you’ll need. They cover everything from unemployment benefits to freelance work and sales from properties and stocks. Finally, a Form W-2G covers any income from gambling. Discuss which forms you’ll need with your tax preparer, or visit the IRS’ website for a complete list of the different income related forms.
Track Your Deductions
Tax deductions allow you to reduce your taxable income that is subject to state and federal income taxes. Decreasing your taxable income decreases the amount of taxes you pay, so it’s important to keep track of the many deductions you may be eligible for. Here is a quick list of some common deductions:
- Various expenses if self-employed, including credit card statements and receipts
- Real estate and property taxes
- Expenses related to investments
- Childcare expenses, including daycare and babysitters
- Sales tax paid on a vehicle
- Contributions made towards a retirement fund
- Expenses related to natural disaster losses
- Certain educational expenses
- Interest on student loans
- Charitable donations
- Expenses for rental homes
- Medical expenses, including payments made to doctors, dentists, clinics, or hospitals
- Insurance payments
- Job-related vehicle expenses
Plan Ahead
The best way to prepare for tax season is to keep track of your expenses and income throughout the year. There are plenty of accounting softwares out there such as Quickbooks and Freshbooks that make tracking your expenses and income a breeze. You can even give your accountant access so they can directly view your statements and create reports without your intervention. Once you develop good accounting habits, tax season will be a breeze from here on out.