How To Prepare For Tax Paying Season
Whether you are a salaried professional or a business owner, your taxes should be sorted out. Getting into a fix with the tax authorities is the last thing that you would want to happen. Filing your returns and paying taxes on time will probably keep you safe but you cannot leave everything to the last moment.
Being prepared for the tax-paying season definitely makes sense. It ensures that you do not miss deadlines and also keeps you stress-free. Additionally, you can have a plan in place to save up your taxes if you are well-prepared. So what is all that you need to do for gearing up for the upcoming tax season? Is it better to handle things alone or seek professional help? When is a good time to get started with the preparations? Let us answer all these questions for you.
Have a look at the last year’s return
Rather than starting from scratch, you can have a look at last year’s return. There are several pieces of information that you can simply copy and paste. This is a time-saving move because it cuts down considerable effort from the preparation process. At the start, you will have to collect the required forms and your personal documentation to fill in the relevant fields. These include your tax ID or social security number, driver’s license and information related to your spouse and dependents.
Decide whether you need a preparer
Do you plan to DIY your taxes or want professional help for the same? The first will work if your taxes are pretty sorted out and there isn’t much that you need to deal with. But you must absolutely hire a preparer if you have a complex profile and are not confident enough to handle things yourself. Don’t wait for the deadline to choose the preparer because you may not get anyone at the last moment. Rather onboard an authorized preparer well in time so that they can get started with the preparations.
Understand if you need a tax lawyer
Just having a preparer may not help in some cases. You will require a seasoned tax lawyer’s services in certain situations. For example, anyone who has started a new business this year needs good advice from a tax attorney regarding the structure and tax treatment. This is the wisest approach at this particular stage because it can have far-reaching implications on the business. Similarly, you will need an attorney for estate planning, buying or selling a business or handling tax issues with the IRS.
List out your income sources
Even if you have a tax preparer or lawyer handling the taxes, the responsibility of gathering information is yours. Listing out your income sources is the best thing to start with. Sorting out the relevant documents is equally important. Essentially, you should list out the following:
- Details of earnings if you are employed
- List of income from each client if you are a freelancer
- Details of investments that yield interest or dividend
- Money received from IRA, pension or annuity
- Income from business or partnership
- Income for any other source
A complete and comprehensive list is required to get a good start.
List the potential deductions as well
A well-rounded list of potential deductions is another vital aspect of tax preparation. The permissible deductions can actually bring down your taxable income and cut the tax burden to a considerable extent.
Home office deductions, medical and health insurance deductions, education deduction and charitable deductions are some of the typical deductions you can claim. There may be others as well and your tax preparer can guide you in this context. You need to have all the receipts and documents in place for claiming these deductions when it is tax time.
Plan ahead for tax refund
Being prepared for tax season is not just about getting ready for filing and paying your taxes before the deadline. Planning ahead for tax refund is equally important. There are some options you can rely on if you expect a refund. You can apply a part or all of it toward the taxes for next year. Alternatively, you can contribute a part or whole of the refund to accounts such as IRAs, education savings accounts or health savings accounts. Your tax professional can help you in this context as well.
Staying one step ahead with your tax preparations is a wise move as it can save your time and money. The sooner you start with the preparations, the lesser will you have to stress out when it is time to pay up. So get ready and get started right now!