3 Things You Can Do Today to Prepare for Tax Season
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Over the past two weeks you may have started to receive the standard W-2 form from your employer or even a tax statement from your bank. Once you start receiving these documents, you know it’s officially tax season. Every year we spend a little time reviewing our annual income, expenditures, and deductibles, in the hopes of getting a little money back from the government. Below you’ll learn 3 things you can do today to prepare for tax season and maximize both your time, and your refund.
1. Decide Who Will File Your Taxes
For many years I led a very uncomplicated financial life. I was single, no kids, a renter, and maintained a single stream of income. Gone are those days. I am now happily married, a home owner, and of course, run this website (which comes with many expenses). A few years ago when my life was far more simple, I elected to use tax filing software. Free Tax USA offers a zero cost filing fee for federal filings (state is $14.99). Or you can opt for a more inclusive program from H&R Block that offers both software and in person help. The process was fairly easy and straight forward with step by step instructions. I was able to file both federal and state for less than $100 and the whole process took only a few hours of my time. However, now that I have a lot more going on in my life both personally and professionally, I’ve opted to use an accountant. My accountant handles both my personal taxes and my professional taxes. When making this decision, I suggest thinking about the complexity of your life and how involved you want to be in the process. At this point I’d much rather hand over my paperwork to a professional to sort through all that I have. However, bear in mind that CPAs (certified public accountant) come at a premium price. While costs will vary across the country, the average cost of filing taxes without itemized deductions is $176, and $273 with deductions. (1)
2. Confirm Dates and Plan Ahead
The IRS announced that tax season officially starts January 24th. While the official deadline to accept filings is not till April 18th, this gives the IRS time to test and ensure that their programs are all functioning correctly and gives us citizens time to gather and prepare our documentation. In addition to the government, all our banking and lending institutions need time to prepare their documentation as well. Make sure to check with your specific lender/broker to determine when you will receive your documentation. This is especially important if you plan to work with an accountant. Your accountant needs time to prepare so ensuring you deliver your documentation to him/her as early as possible is critical. Should you need an extension, you must file for that extension by April 18th (April 19th if you live in MA or ME due to Patriots Day). October 17th is the last day to file for those who requested an extension. (2) In the last few years the government has extended deadlines due to COVID. However, as of today there is no news of an extension. Stay alert to the news and visit the IRS website for the latest information. Ensuring you’ve planned the next few weeks adequately is a great way to prepare for tax season as it will reduce your stress and lessen the burden on your CPA (should you choose to go with a professional).
3. Gather All Your Documents
The complexity of this step will vary from person to person. As I mentioned in the first step, just a few years ago my paperwork consisted of a W-2 and maybe a few donation receipts to the local animal shelter and children’s hospital. Now, I have to gather W-2s, investment account statements, mortgage statements, and so on. If you have children, this is also where you would gather their paperwork (medical expenses, education expenses, etc). Below are some suggested forms and paperwork you should have handy. Please note this is not a complete list. For a more comprehensive list of items, you can visit the IRS official website which lists accepted deductions, or consult a tax specialist/CPA.
- W2 or 1099
- Documents/invoices for medical expenses (for both you and your dependents)
- Mortgage statements-this official documentation should come from your bank
- Taxable brokerage account statement
- Receipts for charitable donations
I like to keep a folder with all my documents organized by category. An electronic budget also works as long as you keep the receipts. Sometimes we’re unaware of what we could deduct-it’s important to review the approved deduction list so you maximize your return.
Don't Stress the Process
Preparing for tax season does not have to be complicated. We’re officially at the beginning so you still have a few months before the deadline. Just follow these easy steps to prepare for tax season and the process will be over before you know it. These tips are meant to help you maximize both your time and your refund. For more information, be sure to visit the IRS website or consult with a CPA.
Sources:
- How Much Will It Cost To Hire An Accountant To Do My Taxes? Adam Hayes, Investopedia. March 17, 2021. https://www.investopedia.com/ask/answers/102814/how-much-will-it-cost-hire-accountant-do-my-taxes.asp (accessed January 25, 2022)
- 2022 tax filing season begins Jan. 24; IRS outlines refund timing and what to expect in advance of April 18 tax deadline. IRS. https://www.irs.gov/newsroom/2022-tax-filing-season-begins-jan-24-irs-outlines-refund-timing-and-what-to-expect-in-advance-of-april-18-tax-deadline (accessed January 25, 2022)