Prepare for Tax Time: Get it together now to make taxes as painless as possible
Tax season is always a little hectic. With the rollercoaster that was 2020, this year is bound to be even more challenging (especially if your business took advantage of the PPP or EIDL programs). But there’s no reason to panic. Just make sure you plan ahead and give yourself a little extra time this year.
Not sure how to prepare for tax time? Follow these steps and you’ll be off to a good start:
Choose a tax preparer
Whether you’re doing your own taxes or having them done professionally, the steps below will make the process easier and faster. Going the DIY route with tools like TurboTax can be a good fit if you have a very simple situation – like a job providing you with a W2 – but the time and effort are probably not worthwhile if your tax situation is more complex.
If you have a business, investments, or multiple streams of income, working with a professional will save you time, stress, and likely pay for itself in deductions you would have missed.
Get an early start on choosing a tax preparer. You’ll want to know who you’re working with so you can schedule an appointment and find out if they have any specific requirements. Also, there’s nothing worse than finding the perfect tax pro only to find out they’re all booked up for the season.
Talk over any specifics with your preparer and add them to the items we’ve got below.
Gather all your documents
You’ll need to pull together the tax forms your preparer will be asking for. This is often the thing that causes the most stress when it’s handled at the last minute. With a little planning and organization, it’s pretty painless.
Depending on your personal situation, you’ll need to gather the following forms:
- W-2s from each job
- 1099s for freelance work, investments, etc.
- 1098s if you paid mortgage interest, education expenses, etc
You’ll also want to bring a copy of last year’s tax return if you’ve got a new preparer. If you’re using the same preparer as last year, they should have a copy already, but it doesn’t hurt to ask.
These documents will be showing up in the mail throughout the beginning of the year. Make a checklist of the documents you need, based on your situation, and place it in a file folder. As each document arrives, you can check it off the list and store it in the folder. That way, you’ll know when you have everything you need and it will all be in one place.
Then gather some more documents
In addition to your standard tax documents, you’ll also need to gather up receipts and proof of tax-deductible payments you made during the year.
If you have a business, you should be keeping these on file all your long. Along with your typical business expenses, these may include continuing education and training, home office expenses, mileage logs and fuel receipts if you used your personal vehicle for business purposes. If you received EIDL or PPP funds to help you get through the economic impact of COVID-19, you’ll also want to provide proof of how you spent those funds, as it could have an impact on your deductions.
For individuals, this could include things like medical expense receipts and charitable donations. These things are deductible – within limits – but are often disallowed if you can’t provide proof.
Watch the deadline
Traditionally, April 15th has been tax day. Unfortunately, many taxpayers wait until the beginning of April to think about taxes at all. You can spare yourself a lot of stress and panic by preparing in advance and filing once you have all your paperwork together. This also makes it much easier on your preparer and much more likely you’ll be able to get a spot on their appointment book.
If you have extenuating circumstances, talk to your preparer about filing for an extension. This gives you an extra 6 months to file your taxes, but it does not extend the due date of any payments you may owe. If you owe a tax payment, you’ll need to estimate and make the payment to avoid fees, interest, and other problems.
Don’t forget to prepare for next year
It may seem stressful at tax time to start thinking about next year, but it can actually save you a lot of stress. As you’re digging around and gathering proof of deductible expenses, start a file to keep all your new receipts. When next tax season rolls around, all you’ll have to do is open a drawer and look through your file to find everything you need.
There’s no reason for tax time to be stressful. As long as you stay organized and give yourself time to prepare, tax season can go smoothly and leave you with the best possible outcome.
You may also be interested in:
5 Big Benefits of Filing Taxes Early
Are You Ready for Tax Season? Here are 5 Big Benefits of Filing Taxes Early We all know the saying about death and taxes. Death can be a bit unpredictable, but taxes pop up like clockwork every April.. read more
