The process of yet again having to pay one’s taxes during the tax season is something that people seldom look forward to, in part due to the sheer amount of paperwork and filing that is required. Nonetheless, with some simple steps, proper guidance, and initial investment of time and organization, this process can be performed successfully and in a far more smooth and streamlined fashion. With all of this information in mind, the following is your tax return explained in five easy steps.
1. Collect All Relevant Documents
The first step is to collect all relevant tax documents. Thinking of this process as a scavenger hunt rather than a seasonal chore can make it a more enjoyable and indeed successful endeavor. Some of the needed forms to keep in mind during this process include your W-2 and 1099 forms as well as your mortgage interest and investment income statements. For those filing their taxes for the first tax season as newlyweds, there are additional tax tips worth keeping in mind. However, marriage is just one of many major milestones that may require a bit of extra paperwork.
2. Choose Itemization or Standard Deduction
The second step is to decide between itemization or standard deduction. Tax deductions decrease the total taxable income, in turn reducing the ultimate tax bill. In deciding which tax deduction option to choose, it first helps to take a look at the standard deduction for the upcoming tax year for single as well as married filers. If amounts greater than said deduction can be written off, it may be better to itemize. Otherwise, selecting the standard deduction can help you avoid the extra work of scavenging through old documents. For itemized deductions, proof will need to be provided. Therefore, it helps to keep an eye out for receipts relating to charitable donations, childcare, education costs, and medical expenses, reaching to a tax professional for advice as necessary should you get overwhelmed at any point.
3. Pick the Right Filing Status
The third step is to pick the filing status that’s right for you. This will aid you in determining the standard deduction amount, any particular credit eligibility, the tax amount that will be owed, and what will need to be done in order to file. Sometimes, say for when one happens to be single, this process ends up being fairly straightforward. However, it can get complicated rather quickly should one find themselves eligible for multiple different filing statuses at the same time.
4. File Your Taxes
The fourth step is to file your taxes once all of your relevant documents have been organized. The IRS found that there was a nearly even social split in 2020 in regards to whether people decided to hire professionals to help file tax returns electronically or to undertake the process alone with tax software or by paper the old-fashioned way. Deciding upon which option to choose can be made easier by looking more closely at how the two methods are undertaken. Tax professionals are better suited for those with more complex financial situations like owning a business or needing to itemize one’s deductions, whereas online software is better suited for those with relatively simple financial situations who tend to avail themselves of the standard deductions. Some professional help removing an IRS tax lien may also be quite helpful.
5. Stay Organized
The fifth and final step is to stay organized for the upcoming year. Should you be left with a large tax refund or tax bill, it would behoove one to adjust withholdings in order to avoid taking too little or too much out of their paycheck in taxes. Furthermore, upon finally sending out one’s taxes to the IRS, it is worth avoiding the temptation to rid oneself of tax forms and old supporting documents in a premature celebration. Instead, any important documents should be filed away promptly so that one will not need to frantically search for them come next tax season. A couple of folders and filing systems can hold them for a few years, during which time they can be useful to have at hand should the IRS knock at your door at any point in time.
Anything relating to taxes tends to terrify people. However, there is no need for this with simple step-by-step guidance. Professional help is always out there, as are many other people right in the same boat.