With the holidays behind us, it’s time to start looking ahead to what the new year has in store. Mark your calendars, everyone.
Tax Day usually falls on or around April 15th. Tax Day (the deadline for filing your taxes) may still be several months away, but that doesn’t mean you can’t start preparing for it now. After all, getting a head start is better than being snuck up on! So what can you do to ready yourself for this year’s tax season? We have the answers!
Gather necessary personal information and items
To start, you’ll need your social security and ID cards. If you’re married or have dependents, you’ll need your spouse’s and dependents’ information as well.
This should include:
- Social security numbers
- Dates of birth
- Any other relevant documents (such as adoption papers or 8332 forms). You might also need your banking information (routing and account numbers) in the event that you receive a tax refund.
Be sure to review your filing status, as this affects how much you owe in taxes every year!
If you’re itemizing deductions or if you made charitable contributions this year, you will need receipts and documents showing as such. Make sure you have these on hand!
Collect forms regarding your income
- If you’re employed, you will need your W-2 form (your employer will have this to you by January 31st). The W-2 form has all the necessary details regarding your salary and wages as well as state and federal tax withholdings.
- If you are a contract worker, such as working a side gig like DoorDash or Uber Eats, and made more than $600 in the last year, you’ll owe taxes. Collect the 1099-NEC form DoorDash sends you. Learn more about the best loans for gig workers.
- If you are unemployed and receiving unemployment or otherwise, you will need a variation of the 1099 form. Learn more about unemployment and taxes here.
- Include your tax return from the previous year.
If you aren’t sure what type of form you may need, take a look at this list by the IRS.
Research your income adjustments and tax deductions
Income adjustments are expenses that directly lower your taxable income. Common examples of adjustments are student loan interest deduction, educator expenses, alimony paid, moving expenses, IRA deduction etc. All of these contribute to reducing your total income before taxes.
Tax deductions are expenses that lower the amount of income you owe state and federal taxes on. These are a form of tax incentives. Some examples of tax deductions are education expenses, student loans, home ownership, dependents, charitable contributions etc. You can claim a tax deduction in two ways: taking the standard deduction or itemizing your deductions. More information here.
Determine where and how you’re filing
Some people opt to file their taxes on their own, but many often choose to pay a professional to handle their taxes to minimize potential mistakes. You might also elect to use an online tax paying service (for free!) like TurboTax. Ultimately, the decision is yours to make, but make sure you schedule plenty of time for filing your taxes, especially if you need to make an appointment or otherwise!
Pros and Cons
Depending on how you choose to file your taxes, we have pro and con lists for you. They are tabulated below:
Doing your own taxes
|Save money Gain peace of mind Acquire better understanding of finances||Insufficient information Room for error Time consuming|
Getting a tax preparation service
|Less errors Time saving Convenient||Prices. Even “free” services may have hidden fees.Not every tax service is good|
Use your tax resources
Don’t let your questions go unanswered! The IRS has many helpful tools on their site, including the Interactive Tax Assistant.
You can also estimate your tax return using this calculator – but remember, this is an estimate and is not guaranteed, so don’t make any financial decisions based on the tax breaks you think you’ll be receiving. Depending upon how much you paid in per month, your income, your dependents, and deductibles, it is possible that you might owe money, rather than getting a return.
You may have plenty of time to start getting your affairs in order, but we highly recommend having a plan and taking care of things as soon as you can. You can file your taxes as soon as you get your W-2 form!
Remember, the earlier you file, the earlier you’ll get your tax return! There are so many ways you can use your tax refund.
If you have questions or are unsure about filing taxes or other tax-related things, the IRS has an incredibly helpful website. Another reason to get started today is you never know what questions or problems may arise along the way!