A common saying states that nothing in life is certain but death and taxes. While taxes are certain, being prepared for your taxes is less certain without undertaking proper steps to be prepared for it. Individuals are able to improve the accuracy of their tax returns by being prepared and taking some basic steps. This article will provide five tips for preparing for tax season including steps that you can undertake before and after the end of the year.
Preparing before Year End
While filing income taxes is an annual requirement, it is often a good idea to prepare a draft tax return before the end of the year in order to understand where you are and whether you will likely owe any taxes upon filing. By doing so you will often able to avoid penalties and interest that may otherwise be charged on your tax return for late payment. While the figures you will be working with are not likely to be exact, you will develop a better understanding regarding any tax amounts you are likely to owe or receive and can also enter into transaction such as the sale of stocks with losses that can ultimately lower your taxable income. Be prepared before the end of the year so you can thus impact your tax return accordingly.
Perform an Assessment of the Prior Year
Many people use a third pay tax preparer to assist them in filing their tax return. Often, they will transfer the 1099’s, W2 forms, and investment statements they receive and have the third party preparer draft the tax return with this information. What is often lost in this process is the major life events that may not make it to these statements. If you have recently married, had a child, or purchased a home be sure to communicate these changes to a tax preparer. Be sure to list all of the significant things that may have occurred during the year and provide any information that you may have received relating to these item so that they can be incorporated into your income tax return.
Summarize Your Investments
Many tax returns do not get properly filed because of a lack of organization. Summarize a listing of all of your investments and assets and be sure to communicate them to your tax prepare. In addition, compare your monthly investment statements with 1099’s that you receive and if there are any significant variations between your statements and the 1099 forms you receive be sure to discuss these with your tax preparer.
Discuss with a Professional
Have a discussion with a tax professional before tax season. This will likely be your tax prepare but may be another tax professional. Discuss the changes in the current year tax laws that can impact your tax return. Also advise them of any major changes in your life including significant increases in income or other tax matters and ask for advice on how you should summarize these for tax reporting purposes.
Organization after Year End
After a taxable year ends it is important to continue to be organized by maintaining copies of all tax documents including W2’s, 1099’s, K1’s, and other relevant tax forms in order to provide them to your tax preparer. Make copies of these statements and scan copies in case any of them are lost or misplaced. Finally, provide them to your tax preparer early as many tax professionals become incredibly busy during tax season and are unable to accommodate late information.
Being prepared for tax season typically involves preparation, organization, and communication. Prepare by calculating tax liabilities early and consider ways to reduce your taxable income, summarize the major transactions, both financial and personal during the year, and properly store tax documents so that you can provide them to your tax preparer in a timely manner.
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Eduardo Dieguez is a content writer for ScottDOwens.com. An avid computer enthusiast, Eduardo spends countless hours tinkering with electronics both new and old.