Do you find yourself rushing with your income tax preparation at the fag end of the irs tax season? By procrastinating and preparing your taxes at the last minute, you might be missing out on potential irs tax deductions or tax refunds, or even worse, you could end up paying penalties for delays in submitting your 2021 tax returns.
As per IRS (Internal Revenue Service), above 80 million taxpayers leverage professional tax preparation services to finish and submit their tax returns. If you are one such taxpayer, it is important to plan ahead for your 2021 tax returns by collated and categorizing your forms, receipts, bills, invoice, and other related documents from now.
Generally, most income tax preparation service professionals will either take this information from you or will ask you to fill in a questionnaire. Whichever the case may be, you would require this information handy for seamless tax preparation service.
Here are the 8 ways in which you can plan ahead for your 2021 tax return preparation:
1) Select an irs tax preparation service to work with:
A tax preparer will help you with complex irs tax calculations. Unless you are well-versed with the tax laws and policies or have expertise in irs tax calculations, it is recommended to hire a tax preparer. Check with your friends and families or research online to choose a reliable tax preparer. Ensure the tax preparation service is experienced and credible — check for their PTIN ( Preparer Tax Identification Number).
While selecting a tax preparer for your irs taxes, you should consider:
- The fees they charge for your specific requirement
- If you need any complex tax preparation, check if they have experience in such scenarios
- A service provider whose services extend to other aspects of tax filing (in case you need them in the future)
- Refrain from hiring a service who wants a percentage of your irs tax refund
2) Book an appointment with the irs tax preparer:
Once you have shortlisted tax preparation services, it is better to meet/talk to the tax preparer at the earliest— to start your tax preparation service soon. Most NRI tax services offer a free consultation or an interview call to know you and your tax filing requirements better.
But, if you wait way too long to contact the tax preparer, it may not only reduce your chances of getting an irs tax refund, but also you run the risk of missing your filing deadline. Hence, it is advisable to reach an understating with your tax prepare well before your tax filing deadlines.
3) Collect and organize your documents:
You would need to get tax documents for filing your federal taxes to form your employer/employers, financial brokers, banks, and other parties from whom you receive income. Ensure you collect and organize these by the end of January. Once you collect all the necessary documents from all parties, make sure the information matches your records.
Here is the list of the most common tax forms:
- Form W-2: you would need this if you have a job
- 1099 forms: you would need several of them if you reporting other sources of income like interest (Form 1099-INT), dividends (Form 1099-DIV), and independent contractors receiving non-employee compensation(Form 1099-MISC). As brokers are not required to send Form 1099-B (reporting gains/losses on your securities transactions) until mid-February, you might receive them a little later than January.
- Form 1098: you would need it to report any mortgage interest you paid during the tax year
- Form W-2G: You need to file this if you had any winnings from gambling
4) Gather your bills and receipts:
Based on the choice to itemize your deductions or go for a standard deduction, you need to provide different receipts. Obviously, you would want to take an option that gives you a bigger and better writer off. But, how to determine this? You would need to add all your itemized deductions then compare the total with the standard deduction allowed.
Below are the different types of receipts that will add up to your deductions:
- Medical or hospital expenses that your insurance or other health plan didn’t cover or reimburse
- Property taxes
- Other investment-related costs
Though all these above-mentioned costs have limits, they are worth your while to consider and itemize. In addition to itemizing these deductions, you can also gather any backups on your charitable contributions.
In the case of business owners, you have to report your income and expenses on Schedule C, which requires you to share your books and records. Hence, if you own a business, it is better to organize your records beforehand as it will save time for your tax preparer while preparing and processing your taxes — may also result in lower service fees.
5) Be ready with your personal information
What do we mean by personal information — your social security number — you would already have that. But, what about the Social Security number of each dependent you claiming during filing your taxes.
You need to keep such information ready along with any other similar information that your tax preparer may require. For instance, if you receive rental income from a property, you may want to note down their addresses or if you have bought or sold any property during the tax year, make sure to keep a note of the dates of purchase or sale.
6) Do you want to file for an extension?
If you think you may finish all these tasks by the stipulated tax filing deadline, you could always request an extension. For instance, for 2020 taxes, you can file an extension request to Oct 15. But, even with the extension, you are required to estimate your tax amount and pay the estimate to IRS on your original tax filing deadline to dodge any penalities.
7) Plan in advance to optimize your chances of getting a tax refund:
Are you expecting a irs tax refund this year? If yes, you can handle it in the following ways:
- Generally, if you pay estimated taxes during the year, you can divert your refunds toward your next year’s taxes. In some cases, the refund might help you cover the first quarter’s installment
- IRS can either send you a check or deposit your refund amount directly into your checking or saving account
- You can choose to contribute your refund to a few types of accounts— saving account, IRAs, education savings accounts, or purchase U.S. savings bonds via TreasuryDirect
- You will also have the option to split the refund you received between your direct deposit by preparing Form 8888. However, to do so, you will need to let your irs tax preparer know about your decision so that it can be indicated in your tax return
8) Keep your last year’s tax return handy:
In case you are with the same tax preparer as you have worked with last year, then they might already have your previous year’s information. However, if you decide to go with a new preparer, then keep your last year’s tax return handy which will help your preparer and you with items you may run the risk of overlooking— interest and dividends, and charitable deductions.
Irrespective of who is preparing your taxes — you or your tax preparation service— the fundamental practice to follow for seamless tax preparation is to keep all your information such as a receipt, deductions, and last year’s returns readily available.