Top Tips for Painless Tax Prep
Although you might dread having to file your taxes, at least you know in advance that taxes are due at the same time every year — April 15. This gives you ample time to plan ahead and get all of your financial ducks in a row. Fortunately, there’s a lot of help available when it comes to filing your taxes, from software products to accountants to online resources. But there are also some steps that you can and should take if you’re looking to make the tax-filing process less painful.
Know What To Expect
Knowing what tax forms you’re supposed to receive can help make the tax planning process much easier. Typically, you’ll receive tax forms reporting all of your income, such as W-2s and 1099-NECs, around Jan. 31 each year. More complex tax forms, such as K-1s for partnerships, may not arrive until March. Depending on your tax situation, you should plan on receiving additional forms as well. For example, if you make mortgage or property tax payments, you’ll receive documents showing how much you paid in a given year. Similarly, if you receive any dividends or make any stock sales, you’ll receive forms like 1099-INT or 1099-B recording those transactions. Once you receive all of the forms you’re expecting, you’ll be one step closer to filing your taxes.
Gather All of Your Paperwork
In addition to the tax forms that are sent to you, you’ll need to collect various statements and documents on your end to successfully complete your tax return. For example, if you make charitable donations or have excessive medical expenses, you’ll want to have written records of those transactions so you can use them as itemized deductions on your tax return. If you run your own business, no one is going to send you a statement showing how much you’ve spent on deductible expenses; you’ll have to keep those records yourself.
Use Tax Software
Before the 1980s, all taxpayers had to file their returns via U.S. mail. It wasn’t until 1986, when five tax preparers from three metropolitan areas were selected for a test program, that the electronic filing of tax returns became available. Nowadays, nearly everyone files their returns electronically. According to the IRS, for tax year 2020, a whopping 94.3% of all individual tax returns were filed electronically. Additionally, 46% of Americans used tax software to file their taxes.
Tax software has grown in popularity because it makes the tax filing process relatively painless. Most software packages have a simple “question and answer” format, in which you’re asked what types of tax forms you have or what financial transactions you made. Then, all of your answers are correctly entered into the appropriate tax forms for you. This can make tax filing a breeze, particularly if you’re unfamiliar with how to complete the actual IRS tax forms.
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File Your Taxes for Free
One of the downsides of filing through a tax software program is that most of them charge fees that can often exceed $50. But the federal government offers a free, online e-file service that requires no payment whatsoever, and about 70% of Americans are eligible to use it. To qualify for the IRS Free File program, you must have a 2021 income of $73,000 or less, which puts it in reach of most Americans. If you qualify, this can remove one of the major pain points that comes with filing taxes every year.
Hire a Professional If Necessary
Sometimes, hiring a tax professional is the best course of action, particularly if you have an overly complicated return. For example, if you invest in limited partnerships, own residential and commercial real estate, actively trade stocks and have a mixture of salaried and contract work, there might be too many plates in the air for you to handle it all by yourself. A good tax professional is trained to handle complex tax situations, ensuring you pay the legal amount of tax you owe while still maximizing your allowable deductions. For taxpayers in this type of situation, the cost of hiring a professional is usually far outweighed by the benefit received.
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