Tax season is here, and like many Americans, the process of collecting documents, filling out forms, and filing income tax is considered a hectic process. Still, it has to be done every year, and the best thing you can do is to learn how to prepare for tax season early enough. The Internal Revenue Service (IRS) announced that tax season begins January 23, 2017, and the deadline for filing income tax ends April 18, 2017.
Considering that the coming weeks will be quite busy for taxpayers and accounting professionals, there are a few steps you can take before filing your taxes that can help make the overall process much easier.
Start Compiling and Organizing Your Documents
The amount of information and documents that you’ll need to file income tax can be extensive. You’ll need to start compiling your financial documents to speed up the filing process later on. This is a critical step in learning how to prepare for tax season. The IRS will require some documents related to your financial transactions made during the last tax year.
Some of the common documents you’ll need include:
- Income and employment statements
- Payroll documents
- Bank statements
- Invoices, receipts, and bills
- Personal and business credit card statements
- Last year’s tax returns
- Asset purchase details
- Accounting documents and others
Understanding how to prepare income tax return and complete the process is not possible without all the required documentation and information. It’s essential to get them gathered and organized to simplify things.
Know What Tax Forms You’ll Need
When it comes to learning how to prepare for tax season, there are many types of forms you will be dealing with depending on whether you’re a sole proprietor, partnership, or a business corporation. It’s important to know the right tax forms and documents required in the filing process.
- For sole proprietors, you’ll need to attach a Schedule C Form to your personal income tax return or use a 1099-MISC form.
- For corporations, an 1120 Form is used for filing returns.
- For businesses with S Corporation Status, an 1120S Form is used.
- For Partnerships, Form 1065 is used to report income, expenses, and losses.
- Others include W-2 earning statement, 1098 Forms to report mortgage interest, Form 1095-A for reporting health insurance coverage among others.
Get Your Financial Records in Order
Nothing slows down taxpayers and businesses like poor record keeping of financial information. Learn how to prepare for tax season by ensuring your records are up-to-date and accurate. List your income and expenses, then carefully examine your deductions. You’re allowed to deduct ordinary and necessary expenses that are required to run your business from your taxable income, which helps lower the tax you owe.
Whether you’re a sole proprietor, partnership, or corporation, knowing what deductions you can correctly employ when filing tax returns can help you save money in the process.
Evaluate Your Filing Status
Did you get married or divorced in the past year? Did you have a baby? Did one of your children set out on their own? Any major changes or events in your life will impact your filing status and the overall process of how to prepare income tax return. You may have to make some significant changes like updating personal details, changing names in your accounts, and reevaluating your financial records. Even if any of the above changes didn’t happen in the past year, you’ll likely want to consider how you’re going to file your tax returns this year.
Maybe you moved to a larger house, went back to school, or even got a major pay raise at work—even the smallest changes in your filing status matter. The IRS provides necessary details on how to prepare for tax season, including the different filing options you have and an interactive tool that helps you determine your filing status.
Decide How You’re Going to Prepare and File Your Taxes
Are you planning to prepare your taxes personally or use tax prep software? If you’re planning to handle the process on your own, gathering all of your documents in advance is critical. If opting to prepare your taxes using software, only consider reputable tax preparation software for correct analysis.
Once you have all the forms ready and determined your filing status, decide how you’re going to file your taxes: in-person or online. You can either file your taxes online through e-filing or the traditional paper filing. This is a major consideration when it comes to planning how to prepare for tax season. More people and businesses are choosing e-filing over traditional filing for the following reasons:
- It’s easier and quicker.
- You can get your refund much faster than if you’re filing by paper.
- It helps eliminate most errors associated with paper returns.
- It saves you money—some states like Massachusetts allow free e-filing.
It’s also important to understand who you can consult when you need a helping hand on how to prepare income tax return. If your tax returns are complicated or you have large amounts to file, you can consult an accounting professional or a certified tax professional for guidance.
Look Out for Updates
It’s important to stay updated on the latest tax regulations. Even the smallest updates can significantly influence the overall filing process. Understand new regulations so that you can file accurate taxes and avoid penalties. Also, be familiar with the tax filing deadlines, when you can expect to receive your tax refund, as well as any other details. Regularly visit the IRS website to find the latest updates on how to prepare for tax season.
Consider consulting a financial expert as most of them are aware of the changes made by tax regulatory authorities.
Consider Ways to Reduce Your Tax Burden
There are ways you can significantly reduce your tax burden or liability when it comes to filing your taxes. However, most of these steps need to be taken early on before the next tax season. Some of these include:
- Contributing to charity or giving out donations to reduce tax liability.
- Contributing to your retirement funds to lower your taxable income.
- Reviewing or adjusting your W-4 withholding to claim tax refunds.
- Getting your health coverage to qualify for health coverage exemption.
- Taking advantage of scholarly tax breaks if applicable for tax savings.
- Updating your financial information in the Health Insurance Marketplace to avoid paying extra tax credits.
Consider an Extension If Necessary
Sometimes, your plan on how to prepare for tax season and file tax returns may end up being more complicated than expected. For instance, there could be delays in receiving tax documents from a company you’ve worked for. If the deadline is looming and you have yet to finalize everything, you should consider a filing extension.
If you’re wondering how to prepare income tax return after the deadline is over, the IRS allows individuals and businesses to request a filing extension of up to 6 months. However, you must make a payment equal to your estimate of what you owe in taxes to avoid incurring penalties as you finalize your tax returns.
Protect Your Identity and Beware of Fraud
Understanding how to prepare for tax season is not enough if you’re not taking necessary measures to protect your identity. According to the IRS, the number of tax fraud cases is noticeably higher during tax season. You should never share your tax details with just anyone; additionally, ensure that devices and websites you work your taxes on are secure.
File Your Taxes
With tax season well under way, be sure to meet the deadline and file your taxes with the IRS. If you find that your tax bracket requires you to pay a fee or if you end up filing with a tax preparation agency, you can check out Cashback Loans’ convenient payday loans for a quick and easy way to settle any of your immediate financial needs. For large tax-related emergencies, you can also contact us for more information regarding our installment loans.
If you’re considering getting a tax refund loan, or want to learn more about how you can prepare for tax season, talk to our experts at Cashback Loans! We’re happy to help you with all of your financial situations and can provide a great short-term solution for all of your needs. Contact us or check out your local Cashback Loans location today.