Are you ready for tax season? No one particularly likes preparing for it. That’s why we have put together this quick overview for you about what you will need to prepare for tax filing season.
Regardless of whether you decide to file your taxes yourself or have a tax professional do it for you, you will still need to perform the same preparations for filing your taxes.
How to Prepare for Tax Filing Season
Here are the recommended steps for preparing to file your taxes. Not all the following steps will apply to you. Therefore, gather the documents and information that apply to your situation and skip those that don’t.
1. Tax Preparation Checklist and Tax Folder
Download a tax preparation checklist or request one from your tax preparer. You can use this to check off the items you need to gather. A checklist will also help ensure you don’t forget anything. After you’ve compiled all your documents place them in your tax folder.
2. Last Year’s Tax Return
You will need a copy of your last year’s tax return as part of this year’s tax preparation process.
3. Personal Information and Bank Routing Number (if applicable)
You will need your name, social security number, date of birth, as well as spouse, and dependent information. And, if you want your refund direct deposited, you will also need to supply your bank routing number.
4. Compile Receipts
Gather all your expense receipts if you plan to itemize your deductions. If you don’t have enough expenses to itemize your deductions, you simply take the standard deduction. That means you will either claim the standard deduction or use your itemized deductions, whichever one is greater. The standard deduction amount you can take changes periodically; therefore, you will need to reconfirm that amount each year. Standard deduction amounts for the 2020 tax year are $12,400 for single or married filing separately, $18,650 for head of household and $24,800 for those filing jointly with spouses.
5. Income Data and Documents
You will need the following income data and documents.
- Job income (W-2s) for you and your spouse.
- Investment income for you and your spouse. This could be 1099s for interest and/or dividends and/or capital gains, K-1s, stock and bond sale information, or any other source of income you might have.
- State and local income information such as tax refunds, unemployment, etc.
- Business income such as a profit and loss statement and capital expenditures.
- Home office information such as the amount of your home used for business purposes, office size, home expenses, and office expenses. (W-2 employees cannot take a home office deduction)
- IRA and pension income.
- Rental property income and expenses such as a profit and loss statement and rental property suspended loss data.
- Social security income (Form SSA-1099).
- Other income such as the sale of a property and the associated costs, gambling winnings, scholarships, etc.
6. Income Adjustments
Calculate the items that will reduce the amount of your taxable income. Doing so will lower the amount you owe or increase the amount of your refund. These could be IRA contributions, Health Savings Account contributions, student loan interest, health insurance payments or pension plans if you are self-employed, and other allowable income adjustments.
7. Estimated Tax Payments
If you expect to owe more than $1,000 in any given tax year, the IRS generally requires you to make estimated tax payments throughout the year. So you will need to calculate your estimated tax payments. These are the taxes you prepaid throughout the year that will be applied to the amount of taxes you will owe when you file your taxes. This usually applies to those who are self-employed or business owners.
Keep in mind that you will be penalized if you don’t pay the right amount of estimated taxes each year. Therefore, if you don’t know how much in estimated taxes you are required to pay, it’s best to talk with your tax preparer to determine the proper amount so you aren’t penalized by the IRS.
8. Tax Deduction and Tax Credit Information
These are the tax deductions and credits the government allows you to take to lower your tax liability.
- Medical and dental expenses.
- Charitable donations.
- Home mortgage interest and points.
- Investment interest expenses.
- Childcare expenses.
- Education costs and expenses.
- Energy efficient home improvements
- Theft losses and causality expenses for damage and the insurance reimbursements you received.
There are other miscellaneous tax deductions available that will be specific to your situation. So, don’t forget to check with your tax preparer to find out what other miscellaneous deductions you might be eligible to receive.
Tax Changes and Rules
Please remember that tax breaks and rules from the past may no longer be available. Or there might be new tax breaks you could be eligible for. So, make sure you talk with your tax preparer about your situation. This will ensure you are getting all the tax advantages you deserve.
If you would like to talk with a tax professional, please Contact Tostrud & Temp. S.C. today. We are certified public accountants and can help you through tax season effortlessly and stress-free. Let us take that monumental burden off your plate. We look forward to serving you!