The current year is nearing its end. This means receiving W-2s and sending out 1099 forms. In short, it is Tax Filing season again. With such a daunting task to do, it is important to take necessary preparation and planning for a stress-free tax filing.
According to the IRS, filers spend an average of 16 hours to prepare income tax return. All the recordkeeping, and filing out of forms are crammed into just 16 hours. However, that number does not speak of the troubles and hassles that filers suffer from every filing season. Cramming to prepare and file returns often leads to missing out write-offs that could have been accounted for to reduce the tax burden, and penalties that could have been avoided.
To help you prevent penalties and avoid unaccounted write-offs, eFiling Plus shares 15 essential tips that you can do to have a trouble-free tax preparation.
15 Essential Tips for a Trouble-Free Tax Preparation
1. Mark Your Calendar (Know Important Filing Dates)
Knowing what and when to file tax forms will surely save you from a lot stress and headache. Importantly, there are changes to the filing deadline for the 2017 filing season. To check the important dates for 2017 tax filing season, check the eFiling Plus infographic here.
2. Check for Updates
It pays to be informed. Getting informed about the updates in tax law helps you prepare better in case of new requirements, deadline changes or other iterations. When you’re up to preparing for your tax filing why not spend some hours in the IRS website. It is always up to date with the latest announcements. You can also try checking quick takeaways from reputable sources online.
3. Decide on Your Filing Option
It is for you to choose whether to prepare and file your income tax by yourself or hire a professional Tax Preparer. Filing on paper by yourself is free. E-filing tools, on the other hand, charges minimally but leaves you no trouble when filing.
However, time will come that you may need professional help. If you have any of these criteria, it is advisable to hire a professional tax preparer:
- Have earned a gross income of more than $150,000;
- Your earnings and expenses significantly changed in the past year such as started or closed a business;
- Have had life changing events: marriage, divorce, retirement, suffered calamity, bankruptcy.
- You can’t handle the books or track your money.
4. Choose a Tax Preparer Wisely
Be prudent in choosing a tax preparer to avoid any trouble when filing your returns. Hiring one exposes you to many vulnerabilities as you disclose important financial and personal information to them. Many of them are trustworthy and professional enough to be confided with your information.
However, it pays to follow the following tips so that you won’t fall into the hands of scammers.
- Check the Qualification from the IRS official directory of authorized tax preparers. Only those with PTIN (Preparer Tax Identification Number) are authorized to do the job.
- Ask pertinent questions:
- About his or her tax background
- About his or her Experience in handling your tax filing situation
- Ask about the service fee. Do not hire preparers who charges a rate from your refund or those who asks you to deposit the refund on their bank account before transferring it to yours.
5. Schedule an Early Appointment with Your Tax Preparer
If you need professional help, getting started with your preparer early provides ample time to prepare and process your returns. Doing this helps your tax preparer in studying your expenses and income. Thereby, he could advise you of the tax breaks you can claim. Moreover, filing early means you get your refunds early.
Whether you’ll file by yourself or with a professional help, preparing pertinent documents and records is inevitable. Here are quick tips for you to manage all the paperworks –
6. Keep all Records for Income returns
Organize pertinent information returns that you will receive as early as January.
Never pile them up, or leave them untouched until the deadline. Check if the information indicated therein are correct.
Here is a Preparation Checklist for filing income tax returns:
- Your Social Security Number (SSN) or Tax ID number
- SSN of your spouse
- SSN for each dependents
- W-2 Forms (and of your spouse). Employers send out this form until January 31
- 1099 Forms if you received more than $600 in compensation for a contract work
Preparing for Credits and Deductions for Income Adjustments
Your taxable income can be adjusted through various tax credits and deductions. These reduce the taxes you owe:
- 1098, mortgage interest
- 1098 T, if you paid tuition fees
- 1098 E, for student loan interest
- 1095-A, if you purchased health insurance from government marketplace
- Job-hunting expenses
- Form 5498, reporting IRA contribution
IMPORTANT: The above is an incomplete list of information returns you have to prepare. Tax filing depends on your employment status, sources of income, and payments made. Visit the IRS website for a more comprehensive tax preparation checklist according to your circumstance.
7. Keep Last Year’s Return
The IRS expects you to keep your income tax return for up to three years, following the statutes of limitations. This not only means for the sake of following the rule, but it is ultimately important to substantiate the deductions and refunds you are to claim.
8. Ask for W-9 for Every Payments Made and Received (for Forms 1099)
A general practice for a trouble-free 1099 filing is to ask for W-9 Form from any service providers or vendors you pay more than $600. It provides pertinent information such as mailing information and the tax ID of the payee. Doing so prevents you from committing mistakes that may cost you a lot of money.
9. Get the Right Forms or Better, File Electronically
You can find pertinent forms like Form 1040 and 1099s from your local post office or library. Income tax return forms (Form 1040s) are downloadable from the IRS website. You can can print, fill out and file this form to the Service. However, most of the forms for information returns should be obtained from the IRS publication itself:
Never file the following forms printed from the internet:
- Form 1096
- From 1099s
- Form 1098s
- Form 5498 or IRA Contribution
Never Miss Tax-Breaks
Now that your paperworks are ready, here are some tips to write off your tax debt.
10. Anticipate Your Taxable Income
You can calculate your taxable income early in order to determine the tax breaks you could accelerate, and whether to delay year-end bonus or not. By figuring your taxable income early, there is a greater chance to make some adjustments e.g delaying year-end income or accelerate deduction in order to minimize the taxes you owe.
11. Save with IRA
Instead of saving up money on typical bank account where the accumulated interest is taxed, you can fun an IRA (Individual Retirement Account) to steer clear of taxable interest.
Funding IRA does not only dodge tax on interest but also, it is considered as a deductible expense. You can deposit up to $5,500 of deductible expense to IRA until April 15th.
12. Defer Income & Accelerate Deduction
If you want to boost the tax breaks you want to claim try to delay additional year-end income and accelerate deductible expenses. If you expect to receive year-end bonus, try delaying it until next year so that it will not be taxed for the current tax year. And bulk up your write-offs by spending on deductible expenses in one year.
13. File and Pay on Time to Avoid Penalties
Nobody can afford the impending penalties for late filing or payment of tax. The IRS imposes a monthly 0.5% fine of unpaid taxes for failure to pay (FTP) tax and a monthly 5% fine for failure to file (FTF).
Aside from the penalties you want to avoid, processing your tax returns early is important to receive your refunds promptly.
Important: filers who are expecting refunds from the IRS are not penalized for filing later than the deadline even without asking for an extension .
14. Don’t forget state and local tax obligations
Remember that you also have tax responsibility to your state income tax. Majority of the states imposes separate income tax filing. As law varies across different states including penalties, it is important not to overlook filing your state income tax returns.
15. When all else fail, File for a Tax extension
You can avail of up to 6-month filing extension when you file Form 4868 (Application for Automatic Extension of Time to File). It is important to file for extension within the original deadline.
Important: Filing extension does not extend the deadline for payment. You must pay within the original deadline even when your tax filing deadline is extended.
Doing things early and one at a time is a good practice to have a trouble-free tax filing. With these essential tips for tax preparation, you could easily overcome late filing and overlooking tax breaks.
Do you find these tips useful? Share your thoughts by commenting below.
You can follow our blog for tax tips, guidelines and information by clicking here.