How to Prepare for Tax Season
Tax laws can be complicated and are always changing, which can make preparing your own tax return a scary task. For many people, the most dreaded time of the year is tax season. However, it does not have to be because we are going to give you tips on how to prepare for tax season ahead of time. If you know how to prepare for tax season this year, when it is time to file your tax returns, it will take much less time for you to gather all the documents and accurately complete the tax returns yourself or with the help of a specialist.
Organizing your documents
When you do your tax returns yourself or have someone do them for you, it is always helpful to be as organized as possible in gathering together all of your relevant info materials and organizing your documents. The more organized you are, the easier your (or your CPA’s) life becomes at tax time.
When it comes to tax documents, it is all about having systems in place for all types of stuff that comes in, so when tax time comes around, it is nice and easy to locate everything you need. Business owners might find it very helpful to look at the Profit and Loss Statement and simply start at the top with the revenue and work their way down to help them organize their tax return documents.
The tax return you had filed last year is also a great reference on the information, such as possible deductions and withholdings, you need to have on hand when preparing a tax return for this year.
Each year, you can create a folder for tax related documents and then create subfolders for income documentation, business documentation, personal documentation, and other miscellaneous documents. You should be adding documents to these folders throughout the year instead of trying to cram it all at once during the tax season because that will totally stress you out.
Remember, you do not have to be a CPA to have a good enough understanding of how to organize all the documents. However, if you are not confident, turn to your tax preparer for help getting the ball rolling by creating a checklist of major categories of items to keep in mind when collecting the documents throughout the year. Finally, it is advisable to separate personal tax documents from business tax documents.
Planning ahead
It is great when you get tax refunds. However, once the tax season comes, many individuals and business owners find that they actually owe to the IRS. Thus, we believe planning ahead is an important tip we can give everyone who is searching how to prepare for tax season. After all, you do not want to find yourself in a situation where you owe a big amount of money for your taxes but have no resources to pay for those taxes.
First of all, we want to say that even if you cannot pay your taxes, you should still file your tax returns. Otherwise, you will also have to pay a failure to file penalty that is in addition to the failure to pay penalty. At the same time, you can file for an extension and you will have six more months to come up with the money you owe because the IRS will not know that you actually owe money until you file. However, it is best to be ready than to try to figure out what to do when the tax season comes. This is where tax advisors come in.
A tax advisor does much more than just prepare your tax return. The tax advisor’s job actually ends with your tax return and it is the last step in the whole process. When you are working with a tax advisor, you are working with them throughout the year. A quality tax advisor will help you have your taxes figured out long before it is tax time. This makes a tax season a piece of cake. You will be able to get over with it quickly and while paying a lot less in taxes, which means more money in your pocket to invest back into your business and back into yourself.
Choosing tax preparer
Many individuals and business owners find taxes to be too complicated to complete on their own and search for tax preparers to help them file their tax returns and reduce the amount of taxes owed. However, you do not have to pay someone to do your taxes because many individuals can now take advantage of the free file. The IRS works with private software providers to allow people with income that is below a specific amount to file for free.
If you choose to go with a preparer instead or do not qualify for a free file, you should look up your tax preparer ahead of time and check credentials. Ask for their preparer tax ID number (PTIN) and look it up on the official IRS website. Ask questions about their experience and education and ask if they have references you can contact.
In addition, you should ask what will happen if the IRS challenges your return or audits you. Will the preparer have your back? Make sure the tax preparer is accessible, especially after your return is filed, in case you have any questions.
IRS warns about the so-called “ghost tax preparers” who do not sign the tax returns they help to prepare and vanish afterward. Remember, you are still responsible for the information on your tax return no matter who had calculated all the numbers on it and entered other information. Be wary of preparers who:
- Want you to sign a blank tax return
- Won’t provide you with copies of your tax returns
- Claim credits you most likely should not be
- Offer to create false supporting documents for getting deductions
- Charge interest on advance refunds, but won’t put the interest rate in writing.
Before you place your signature on any documents given to you by a tax preparer make sure to read everything and check that all the information presented on there is correct.