Steps to Take Before You Prepare Your Taxes

A little prep work can save you time and money

Almost 85 million taxpayers pay professionals to complete and submit their tax returns, according to the Internal Revenue Service (IRS). If you're one of them, it is important to organize your receipts, forms, and other documents well before tax time.

Your preparer may take information directly from you or ask you to complete a questionnaire. Either way, a little preparation will help you get through the process quickly and easily. Even if you do your own taxes, the steps below will help you get organized.

Key Takeaways

  • Gather all the annual tax documents you've received that record your taxable income and deductible expenses, most of which will arrive by the end of January.
  • Collect all your receipts and organize them by category if you itemize your deductions.
  • You don't need to bother with the receipts if you use the standard deduction.
  • Dig out a copy of last year's taxes for reference.
  • Your tax pro, tax software, or the IRS has all the tax forms you'll need for your tax return.

Choose a Tax Preparer

If you don’t have a tax preparer, a good way to find one is to ask friends and advisors (such as an attorney you know) for referrals. Be sure the person you choose has a preparer tax identification number (PTIN) showing they are authorized to prepare federal income tax returns.

Be sure to inquire about how much they charge in fees. This, of course, depends on the complexity of your return. Avoid using a firm that takes a percentage of your refund. The IRS website has tips for choosing a preparer and a link to the IRS directory of preparers, which you can search by credentials and location.

Residents and business owners in Louisiana and parts of Mississippi, New York, and New Jersey were granted extensions on their deadlines for filings and payments to the IRS due to Hurricane Ida. Due to the tornado in December 2021, taxpayers in parts of Kentucky were also granted extensions. You can consult IRS disaster relief announcements to determine your eligibility.

Schedule an Appointment

The sooner you meet with your preparer, the sooner you should be able to complete your return—even if you decide to file for an extension. If you anticipate a refund, you'll get that sooner, too.

If you wait too long to schedule an appointment with a tax preparer, it might not happen before the filing deadline. That means you could miss out on opportunities to lower your tax bills, such as making a deductible contribution to an individual retirement account (IRA) or a health savings account (HSA).

Gather Your Documents

You should receive all the tax documents you need from your employer or employers as well as from banks, brokerage firms, and others with whom you do business by the end of January. Check that the information matches your own records on each form.

These are some of the most common forms:

  • Form W-2 if you had a job.
  • The various 1099 forms that report other income you received, such as dividends (Form 1099-DIV), interest (Form 1099-INT), and nonemployee compensation paid to independent contractors (Form 1099-MISC). Brokers aren't required to mail Form 1099-B, which reports gains and losses on securities transactions, until mid-February, so those may come a little later.
  • Form 1098 for reporting any mortgage interest you paid.
  • Form W-2G if you had certain gambling winnings.

The better organized your records are, the less time it will take a preparer to process your taxes, which translates into lower fees for their service.

Round Up Your Receipts

The receipts you'll need to provide depend on whether you itemize your deductions or claim the standard deduction. You'll want to choose whichever produces the bigger write-off, but the only way to know for sure is to add up your itemized deductions and compare that with your standard deduction.

For the 2021 tax year, the standard deduction for single taxpayers is $12,550 and for married couples filing jointly, it is $25,100. Those figures increase in 2022 to $12,950 for singles and $25,900 for married couples filing jointly.

Make sure you look for receipts for medical costs not covered by insurance or reimbursed by any other health plan (such as a flexible spending account or an HSA), property taxes, and investment-related expenses. These are all subject to limits, but if they're substantial enough, it may be worth your while to itemize.

For tax year 2021, you can deduct up to $300 ($600 if you're married and filing jointly) in cash donations made to qualifying charities, even if you take the standard deduction. Also for tax year 2021: If you itemize, you can write off up to 100% of your adjusted gross income for cash contributions to qualifying charitable organizations.

If you itemize your deductions, you'll also need to collect any backup you have for charitable contributions. For example, donations of $250 or more require a written acknowledgment from the charity stating the amount of your gift and that you did not receive anything (other than perhaps a token item) in return. If you don't have such an acknowledgment, contact the charity and request it. You can find more details on charitable deductions in IRS Publication 1771.

If you have business income and expenses to report on Schedule C, you will need to share your books and records, such as QuickBooks or any other accounting system, receipts for expenses, and relevant bank and credit card statements.

List Your Personal Information

You probably know your Social Security number (SSN), but do you know the Social Security number of each dependent you claim? You'll want to jot those down (in a safe place, of course), along with any other information your tax preparer is likely to need.

For example, if you own a vacation home or rental property, note the addresses. If you sold a property in the past year, note the dates you bought and sold it, the amount you originally paid for it, and how much you received from the sale.

Decide Whether to File for an Extension

If you need more time to complete all of these tasks, you can request an extension to October 15th for filing your tax return. However, you'll still have to estimate the amount of tax you owe and pay that amount by the regular April 15 deadline to avoid penalties and interest.

Plan Ahead for Any Refund

If you expect a tax refund, you have several options for how it's handled.

  • You can apply some or all of the refund toward next year's taxes. If you usually pay estimated taxes throughout the year, that can help cover the first quarterly installment.
  • The government can send you a paper check by mail or deposit the refund directly into your checking or savings account.
  • You can contribute some or all of your refund to certain types of accounts (IRAs, health savings accounts, education savings accounts) or buy U.S. savings bonds through TreasuryDirect.

You can also split your refund among the direct deposit choices by completing Form 8888.

You'll need to let your tax preparer know what you want to do so they can indicate it on your return.

Find a Copy of Last Year’s Return

If you use the same preparer you used last year, they will likely have your previous information. If you use a new preparer, last year’s return can serve as a reminder to the preparer—and you—of some items you don’t want to overlook. Here are two examples:

  • Interest and dividends: Last year's return should indicate which banks, mutual funds, and other financial institutions sent you 1099 forms. Use that list to make sure you received 1099s from them again this year (unless you closed those accounts or sold the investments in the meantime).
  • Charitable deductions: If you made small gifts, you might not have received any acknowledgment from the organization, but you can still deduct these contributions as long as you have a receipt, canceled check, or other proof. Consult last year’s list of organizations you donated to and see whether you made similar gifts this year.

What Is the Deadline for Filing a Tax Return?

Income tax returns are generally due on April 15 following the tax year. For example, you have until April 15, 2022, to file your 2021 tax return. The IRS may extend the filing deadline in certain situations. For instance, the deadline for filing 2020 tax returns was extended from April 15 to May 17, 2021, due to the "unusual circumstances related to the pandemic." The extension also postponed the deadline for tax payments to May 17, 2021.

How Much Does Tax Preparation Cost?

For 2020, the typical cost for tax preparation using Form 1040 was $220 when the standard deduction was taken and $323 when deductions were itemized, according to a survey from the National Society of Accountants.

How Do I File an Extension With the IRS?

Income tax returns are generally due on or around April 15 each year. If you can't file on time, you can file for an automatic six-month extension using Form 4868. Keep in mind that the extension applies to filing your tax return—not to paying any taxes you may owe. To avoid penalties and interest, you'll need to pay your taxes by the regular filing deadline (April 15).

The Bottom Line

Whether you do your own taxes or hire someone else to handle the task, organizing your records in advance will save you time and, in the case of a paid preparer, money. The earlier you start, the more smoothly it should go, and the sooner you'll have put the process behind you for another year.

Article Sources

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