How are you feeling about your taxes this year? Are you worried that it’s too complicated? Or are you excited that there are so many deductions to take advantage of? One thing is sure: tax season can be stressful. There are a lot of different rules to keep track of, and if you miss anything, it could cost you thousands of dollars.
To ensure this doesn’t happen to you, we’ve created a checklist of everything you need to do before filing your taxes.
We know that this is a lot of information, but don’t worry! We’re here to help you along the way.
- Gather all the documents you will need when filing your taxes.
- W-2 forms for you and any dependent children
- 1099 forms for independent contractors
- Interest statements
- Health insurance information if you are self-employed or have a private health care plan
- Business income statements
- Home office deduction information if you work from home
- Education information for tuition payments and student loan interest deductions
- Contact your bank to find out how much you’ve earned in interest since January 1st. If it’s more than $10 in interest, make sure to get a 1099-INT form from the bank.
- Calculate your adjusted gross income (AGI) using this formula: total income – exemptions = AGI. Ensure you have all of the documents that will affect your income, including your W-2 forms and any other federal tax withholding statements you receive by January 31st.
- Calculate your filing status. You can do this by checking the chart on page two of the 1040 instructions.
- Figure out how many allowances you are claiming (i.e., the number of people in your household that are entitled to a deduction, including children). If you’re married, check with your spouse and add their allowances to your own.
- Calculate how much you’ve earned in interest by multiplying the amount of interest you received from your bank by 30%.
- You can also calculate how much capital loss you have, which may provide additional deductions to reduce your taxable income. The government allows individuals to deduct up to $3,000 in capital losses each year. To do this, you’ll need to go to your investment statements and add up the total value of all of your capital loss claims (or short-term capital gains if it’s higher). For example, if you lost $11,000 for the year, your deduction would be $3,000.
- Make copies of your documents. Now you’re ready to talk to an accountant or tax professional so they can help you figure out your deductions.
- Once filing season begins on January 1st, log in to the official IRS website and start working on e-filing your taxes.
Tax Preparation FAQ
What documents do I need to gather for tax preparation?
- First of all, collect your W2s from work over the past year.
- Also, bring in any 1099 forms you have received for income other than salary via a job. This includes taxable interest income and taxable dividends.
- Documentation showing contributions to a pension, profit-sharing, or retirement plan is also essential, and you can get this through statements from your plan provider.
- If you have a business, you may need to provide documentation of income and expenses. Make sure that these are the most current forms available.
- Other sources of taxable income include gambling winnings, unemployment benefits, cash tips that are not reported to your employer, royalties, or union strike benefits.
- You will also need to list the various sources of deductions and tax credits that you plan on taking this year. If you have a spouse, you will consider how filing status and exemptions for children will affect your return.
What costs do I need to save for tax preparation?
- Keep every receipt that is related to business or investment purposes. These can be deducted from your taxable income, so keeping them organized and easy to access is essential.
- Save proof of charitable donations. You will need this documentation to take advantage of tax deductions for these contributions. Make sure that you have receipts or letters that show what you donated and how much it was worth.
- Keep all paid bills related to income, including rent, taxes, and anything else you pay to other people or businesses to use their services.
When should I start gathering my documents?
- The sooner you start preparing for your tax preparation, the better. If you wait until January or February to gather your forms, it may be too late to take advantage of some deductions you can only take in a particular year. This is especially important if you have not been keeping good records.
- If you are self-employed, it is essential to start saving documentation of your business expenses as early in the year as possible so that you have plenty of time to organize everything.
What if I am not keeping good records?
It is possible to save your records digitally so that nothing gets lost or damaged. This allows you to easily access past information without worrying about it getting mixed up with this year’s activities.
What other tax preparation questions do I need to consider?
- If you are self-employed, make sure to calculate taxes both for yourself and for your business. Many people neglect to do this and end up overpaying taxes or getting hit with an unexpected tax bill due to miscalculations.
- If you have children, be aware of credits that may reduce the amount you owe. For example, the child tax credit can be worth up to $1,000 for each dependent child.
- If you are a college student, consider taking advantage of benefits such as the Lifetime Learning Credit or American Opportunity Tax Credit. These may reduce the amount that you owe and enable you to avoid paying unnecessary taxes. Also, look into whether you qualify for certain tax credits for students.
- If you are married, make sure to consider how filing status may affect your return. For example, if one spouse does not work outside of the home, they can file as Head of Household to get certain tax breaks.
How can I find out what is deductible on my taxes?
There are many online resources to look up standard tax deductions. Make sure that you use a credible site and consider consulting with a professional if you need help determining what can and cannot be deducted from your taxes. Some deductions may depend on the nature of your business or investment activity, so this type of information is best left to an expert. If you need help with taxes on your business or investments, call The Oasis Firm to help resolve or clarify these things.
Do you have any other advice for me before I file my taxes this year?
Use a tax preparation service like The Oasis Firm. There may be situations where you cannot prepare your taxes, such as if the amount of deductions you have is too complicated or if you receive income from sources outside of the United States. Make sure to save documentation so that you can verify some aspects of your return with a professional in case there are questions about your deductions or income.
Remember that filing a return is not the same as paying taxes you owe to the IRS. If you cannot pay what you owe right now, there are options for payment plans and settling debts with the IRS.
https://www.nolo.com/legal-encyclopedia/how-sole-proprietors-are-taxed-30292.html