As tax season approaches, you may find yourself wondering what your options are for filing a tax return. There are a couple of items we must address first. When is it officially tax season? What information do you need to gather before you can file your taxes?
- You can prepare your taxes on your own, use online tax preparation software, or hire a pro.
- No matter which method you choose, you will need to have certain information on hand to prepare your return.
- The tax documents most filers need include a W-2 form from an employer and one or more 1099 forms for "miscellaneous" income like side gigs and interest payments. You also should receive a record of any retirement account contributions. All these should arrive sometime in January.
When Is the 2021 Tax Season?
"Tax season" for the prior tax year is in the early months of the following year. So tax season for tax year 2021 will begin in January 2022 and end on the deadline date, April 15th.
Due to Hurricane Ida, some residents and business owners in Louisiana and parts of Mississippi, New York, Pennsylvania, and New Jersey have been granted extensions on their deadlines for filings and payments to the IRS. Most relate to upcoming due dates for quarterly filings and payments.
You'll probably remember that the traditional deadline was pushed back for filing taxes in 2019 and 2020 due to the COVID-19 pandemic. However, no such change has been administered for the 2021 tax year.
Information and Forms You Need to File Taxes
No matter what method you choose to file your taxes, there are certain items you will need to have on hand.
You need to identify yourself and your dependents by Social Security number. You also need to document your filing status, taxable income, the amount of tax you've already paid, and any deductions and credits for which you may be eligible.
Here's what you'll need to have handy:
- Names, dates of birth, and Social Security numbers for yourself, your spouse, and any dependents
- Form W-2, which you receive from your employer and which reports your income and taxes already paid by your employer on your behalf
- Form 1099-NEC (non-employee compensation), which you should receive if you earned more than $600 working for a non-employer entity, worked a contract job, or had a side gig
- Form 1099-MISC, which you would receive if you earned more than $600 in other income, including rents, prizes, fishing boat proceeds, or crop insurance payments
- Form 1099-INT, which you would receive from a bank or other financial institution if you earned more than $10 in interest during the tax year
- A record of your retirement account contributions
If you plan to itemize deductions rather than take the standard deduction, these are the records most commonly needed:
- Property taxes and mortgage interest paid: This typically appears on a Form 1098, Mortgage Interest Statement, which you will receive from your mortgage lender. If you have no mortgage or do not have an escrow account paying your property taxes, you will need to keep a record of your property tax payments separately.
- State and local taxes you paid: This is on the W-2 form if you work for an employer. If you are an independent contractor, you will need a record of the estimated tax payments you made quarterly throughout the year.
- Charitable donations: Charitable donations are a tax-deductible expense; however, the amount you can claim is limited to a percentage of your adjusted gross income (AGI) in most years.
- Educational expenses: Be aware: If you pay qualifying educational expenses with a student loan, it must be claimed in the year the expenses are made, not in the year the loan proceeds are received or repaid.
- Unreimbursed medical bills: For 2020, you can deduct the amount of unreimbursed medical expenses that exceed 7.5% of your AGI (the threshold is typically between 7.5% and 10% of AGI in any normal tax year).
- Last year’s federal and state tax returns.
How to Prepare Your Taxes
There are several ways to prepare your taxes. The three main options for tax preparation are a tax professional, tax software, and filling out the forms yourself.
Do It Yourself
You can prepare your federal taxes on your own by downloading and printing the forms on the IRS website and sending the return in along with a check if you owe a payment.
Another option is to fill out the forms online and submit the return electronically with a credit card payment. All the federal tax forms can be found at IRS.gov.
State income tax forms are usually found on your state's official website.
There is no charge or fee for filing your own taxes. Doing so is a good way to learn more about your financial situation because it forces you to track your transactions, earnings, and spending.
Most people who file their own taxes manually have a simple tax situation, an unchanged tax situation, or a personal interest in the subject. It can take only minutes if you have the right forms on hand.
Use a Tax Professional
For anyone with a complicated financial situation or a lack of confidence about finances, a tax professional is a better option. Capable tax professionals can help minimize the amount you owe and maximize the deductions you claim. Using a tax professional can pay for itself.
Tax Software Vs a CPA: Which Is Right For You?
Use Tax Preparation Software
An intermediate option between filing your own taxes and hiring a professional is to use tax preparation software for your federal and state returns. You input your own information, but the software is designed to help you through the process step by step.
Professional support may be available online or by phone or both.
If you use it for more than one year, the best of these programs automatically fill in your previous year's information.