As we near the end of another year, a familiar process is about to show its ugly face again. That’s right, it’s almost time to prepare your income tax return yet again. For some people, this is a joyous time as filing your taxes means you’ll likely receive a tax refund check. For others, it is a dreadful time. Those people associate filing your taxes with writing a check to Uncle Sam.
Regardless of whether filing your taxes is a positive or negative experience for you, you should start preparing to file your taxes now. I used to prepare tax returns for others while working at a Certified Public Accountant (CPA) firm. I can tell you advanced preparation makes a world of difference. Knowing the documents needed for filing taxes and properly preparing to file taxes will make your life easier. We can all stand to have things be less stressful when it’s time to fill out the forms on TurboTax or head to the tax preparer. Here’s what you should do to start getting ready. It isn’t as hard as you would think.
Look at Last Year’s Return
The first thing to start getting ready for filing your tax return is to take a look at your last year’s return. For most people, very little changes from year to year when it comes to your taxes. The numbers you put on your return will change a bit from year to year. However, the documents you will need to file your return, for the most part, will be very similar.
Look through each page of your return and start making a list of the documents you’ll need to file your return. You can use this list to check off tax forms as you receive them in the mail. You can also start organizing the other necessary information that doesn’t come from third parties. In some cases, you can even pull together some of this information before the end of the year if you know where to look.
Assess How Your Situation Changed
Of course, things do change from year to year. Tax rules change. Personal situations change. Change isn’t bad. It just means you will need to do a bit more work for your taxes in some cases. When it comes to preparing my taxes, I always review the last year to look for any major changes that may affect my taxes.
For instance, this year we sold our primary residence, a rental property, built a new home and had a baby. These changes will have major impacts on our taxes for the year. While selling a primary residence won’t personally affect us, we’ll have to pay taxes on our rental property sale. We’ll also get extra exemptions and a tax credit for our new addition to our family.
You may have other situations like moving for a job, a large healthcare expenditure or a big business write off. If you think something may be applicable to your taxes, just make a note. You can check with your tax preparer or Turbo Tax later when preparing your return.
Looking forward to next year’s taxes, we may want to itemize if our interest paid on our mortgage is high enough. These reviews can help you figure out what additional documentation you may need to take to your tax preparer that you normally wouldn’t think about.
Prepare Your Return Early and File Based on the Results
Once the new year comes around and you receive all of the necessary tax forms, prepare your return as soon as possible. Usually, tax preparation software gets more expensive as the tax deadlines near. As far as CPA firms go, you’ll probably be one of the firm’s favorite clients if you send in all of your paperwork early in an orderly fashion.
After your return is prepared, there will be one of two outcomes. You’ll either receive a refund or you’ll owe a balance to Uncle Sam. If you’re getting a refund, file your return immediately so you can get your money back as soon as possible. If you have to pay Uncle Sam, you may want to wait until the tax deadline to turn in your return and your check, assuming you won’t owe any penalties or interest for late tax payments.
Preparing to file your tax return usually isn’t a difficult process. While it can be annoying if you aren’t organized, preparing in advance will help you be much less frustrated when actually completing your tax return. You might even save some money by filing your taxes early. However, the real win is not having the feeling of dread looming because you’ve already filed your tax return.
Lance Cothern
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