Paying taxes can be stressful to everybody, no matter what financial situation they find themselves in. Usually met with stress, frustration, and scrambling, tax season is the time of the year when accountants need to steel themselves for the work which would start flowing, something that everyone dreads.
Many people wait until the last minute to fix an appointment with their accountant, get all necessary documents together, and then file their tax returns. With frustration and stress comes perpetual procrastination and the temptation to take a shortcut on procedures.
Yet, this season still comes along each year and should be dealt with accordingly. Succumbing to such temptations is a short-sighted mistake which must be avoided.
With the purpose to reduce stress and last-minute scrambling, we have put together few tax preparation tips for a smooth tax season.
1. Start Early
Procrastination is never good, but it can be tragic when it comes to filing your taxes. Unfortunately, about one-fifth of Americans wait till the last few days to file their taxes. Don’t wait until the last minute to start gathering the needed documents for tax filing deadline. Filing taxes under a tight deadline may cause inaccuracies and mistakes which may further lead to problems with Uncle Sam.
While preparing taxes, you may need to provide documents or information which you may not have immediately on hand. It may take some time to gather all such documents, so start early without procrastinating — the more time you give to file your returns, the better the chance of avoiding mistakes.
In case you are filing the taxes jointly along with your spouse and dependents, reach them out early to get the paperwork done. Things would be smoother if all the tax records are ready when you start to file – and you will be able to focus more on running your business.
2. Get Organized
Keep your documents and record needed for tax season organized so that the tax preparation process is smoother and efficient. If you are audited, you would not need to worry with documentation. Below is the list of necessary forms to file.
To be filed annually:
- Form 940: Employer’s Annual Federal Unemployment Tax Return
- Form 944: Employer’s Annual Federal Tax Return (file this form annually if you didn’t file the Form 941 quarterly)
- Form W-2: Federal Wage and Tax Statements
- Federal 1096: Annual Summary and Transmittal of U.S. Information Returns
- Form W-3: Transmittal of Income and Tax Statements
- Form 1095-C for large employers, Form 1095-B to be given to your employees if you are self-insured, and to report health care coverage – one form for each employee.
- Federal 1099-MISC form
- Form 943: for those in the agriculture sector
To be filled quarterly:
- Most local income tax returns
- Form 941: Employer’s Quarterly Federal Tax Return
- Some states need unemployment tax returns
- Some states require income tax returns
3. File Electronically
Maybe you are the pen-paper type of person who moves away from technology. However, there exists a piece of technology it pays to adopt – electronic filing.
Electronically filing a tax return has proved to minimize the chances of making a mistake. According to the IRS, the error rate for paper tax returns is about 21%, which that of electronic returns is less than 1%.
Another benefit of filing a tax return electronically is that if you are due for a refund, you’ll get it sooner. Usually, the IRS issues refunds within three weeks for electronic returns, but it takes about six to eight weeks in case you file on paper. Moreover, you don’t need to lie awake at night thinking if your paper tax return got lost in the mail.
Submitting the tax return electronically (with payment) is easy, and you don’t need postage or an envelope. Instead, with a single click, your return is forwarded to the department. Along with this, you will get a conformational email to ensure that your return is received and being processed.
4. Research Your Tax Deduction and Credits
While tax deductions would reduce your taxable income, credits would reduce the amount owed on the tax bill. Therefore, keep yourself updated on the latest tax deductions to make sure that you take full advantage of the tax savings you deserve.
As no one claims you as a dependent on his tax forms, you would be eligible for personal exemption. According to the IRS, one out of every five employees fails to claim their Earned Income Tax Credit. There are other common credits such as the Child and Dependent Care Credit, the American Opportunity Tax Credit, the Premium Tax Credit, and the Saver’s Tax Credit.
It is a good idea to make a list of eligible tax breaks now instead of rushing in April to know the ones for which you qualify. If the amount you are owed in credits is more than what you owe, you will get the payment for the difference.
5. Know Your Needs
While filing a tax return may seem complex, not everyone needs a tax professional to file it.
If you are an employee who is reporting salary information, there is a simple process to follow. However, many a time people get overwhelmed as they have more complex issues to deal with – maybe they are confused about how to account for a rental property, or they don’t know what expenses are supposed to be deducted or what documents are needed for a freelance business.
If you are finding it difficult to file your tax return, you can reach out a tax professional to help you walk through the process.
As there is no uniform tax return, accountants do not have consistent pricing, and it may also be dependent on the location. A tax professional or an accountant may charge you a low base price but have additional fees or may charge for guidance. While choosing a tax preparer, ask the right questions, such as how they can address your precise tax needs. It would help you avoid any kind of surprise.
Also note that, with Trump Administration’s tax reform, costs for tax preparation are not deductible any longer as of 2018.
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