How to Properly Prepare for Filing Your Taxes
The following is a guest post from Manuel Davis. Manuel is a tax accountant and writer for BackTaxesHelp.com and helps individuals with various IRS problems.
How to Properly Prepare for Filing Your Taxes
While April 15th may seem far away, now is the time to start thinking about your taxes to ensure that your tax filing goes smoothly. The main causes of tax filing errors are rushing and not having all necessary tax documents on hand. Even if you plan to use a tax professional, it is important to start working with them early since it is likely they will be rushed towards the end of tax season. Below are some steps to follow to ensure your taxes get done properly and nothing is missed.
- Organize Documents ASAP: The sooner your organize your tax documents the sooner you can spot errors or figure out what is missing. You should typically receive all your documents needed to file your taxes by the first week in February since companies are required to post mark most tax related documents by January 31st. These documents can include W-2s, 1099s, Interest & Dividends reports, 1099Bs, and 1098s. If you notice you are missing any of these documents by the end of the first week in February it is a good idea to follow up with the company you are missing these documents from to ensure they are on their way.
- Research: The tax code changes every year and there are more tax credits and deductions that become available. It is a good idea to look up the most common tax credits and deductions that you can legally take. If any of these apply to you then it is important to get the proper documentation to backup your claims for how much you are going to deduct on your tax return. If you want to learn everything you can about filing your 2009 tax return, you can read IRS publication 17, a 305 page document created by the IRS detailing information about your federal income taxes.
- Consider Hiring Professional Help: The tax code is complex, and it is unlikely you will read a 300+ page document that details your individual income tax filing for 2009. For this reason, hiring a tax professional is recommended. They file many returns and will likely know fairly quickly what tax credits and deductions will apply to you after a brief interview about your finances and other applicable situations. If you think about it, if a tax professional can find one small deduction that you would have missed, this will likely more than justify the expense of using the tax professional. Also consider going to the tax professional early on in February in order to get started. They can do a brief review of the documents you already have and can advise you on other documentation that you should receive or need in order to get your taxes properly filed. There are also many tax programs or computer software applications that simplify the tax filing process for individuals and businesses. However, it is still advised to use a tax professional as deductions and credits can still easily be missed when using tax preparation programs.
- Are you going to owe taxes? Consider how to pay: Typically individuals do not realize they will have tax debt at the end of the year and fail set aside enough money to pay what they owe in full. If you are one of these individuals it is important to plan how you will pay. The IRS may encourage the use of a credit card but this may cost you more in interest and fees than other methods that are available. The most common way to pay taxes if you cannot pay in full is through the use of an installment agreement. An installment agreement will allow you to make monthly payments towards the taxes owed. The interest and fees involved with this type of payment arrangement is typically less than using a credit card but will require a bit more paper work to get setup. It is important to file this right away with your taxes in order to reduce the failure to pay penalty.
- Plan how you will file: If you mail in your tax return via standard mail and the IRS does not receive it, it is the same thing as you not filing. For this reason, it is a good idea to consider using certified mail. Using certified mail will provide proof that the tax return was mailed prior to the due date and you will know the return was actually received. Another great option is to file your return electronically because you will receive an acknowledgment that your return was received within 48 hours. If you foresee difficulties in getting your tax return filed by April 15th, consider filing for an extension. An extension will give you until October 15th to file your taxes, but if you owe taxes you must pay 90% by April 15th.
Preparing for your tax filing does not need to be overly time consuming, it just needs to be organized and planned out early. Early planning and organization can greatly decrease your chances of making mistakes and can lead to higher deductions and possibly a larger refund each year. While a tax professional is not required, it is highly recommended since it is likely that the fee for their service will be more than offset by savings you will likely receive.