How To Tackle Tax Season
January 04, 2024When the tax deadline approaches, it can be stressful, especially if you are unsure if you have to pay the IRS. It’s too easy to procrastinate with that potential IOU looming over your head. However, having a game plan to organize and execute filing your taxes can take the bite out of tax season.
Gathering information
Build a tax file for your incoming tax statements. Getting it all together saves the hassle of stopping in the middle of your tax preparation. Visit your checking, savings, and online brokerage accounts for 1099s. Check your mortgage provider for statements on interest paid. If you have an escrow, this may also include property taxes. If not, check your local jurisdiction online to download a statement.
One way to “de-stress” your tax planning is to know in advance if you and the IRS agree on the facts of the previous year. Nothing is more annoying than preparing your return and then getting that letter from the IRS that they found a discrepancy. It can slow down the process of your tax refund. You can view your official transcript with the IRS online account by visiting Your Online Account | Internal Revenue Service (irs.gov). (The IRS made this easier by removing the biometric data requirement.)
Getting your tax filing done
One recent survey shows that almost half (45%) of its respondents use tax planning software. Others (38%) choose to hire a tax preparer in person or virtually. The remainder prepares it the old-fashioned way. People with simple situations (no businesses, no real estate investment, and little to no investment income) are generally satisfied using tax filing software. However, one thing that can get overlooked is the options available to prepare your taxes for free if you fall below a certain income threshold. In addition, over 94% of individual tax returns are filed electronically.
Choosing a tax preparation method has much to do with your personal preference. For example, if you prefer to have a person prepare your return for you and your situation is relatively simple, a national chain franchise like H&R Block, Jackson Hewitt, or their local equivalent could be your cheapest and quickest solution. Just be aware that there is a wide variation in skills and experience among the people who work in these companies.
If your situation is complex or you have lingering issues with the IRS, you may want to consider an Enrolled Agent or CPA specializing in individual taxes. Enrolled Agents are authorized to represent you in front of the IRS and earn their status either through experience as a former IRS employee or by passing a 3-part comprehensive IRS test on individual and business tax returns. You can search for a local one here. Like Enrolled Agents, CPAs can represent you in front of the IRS and have even more rigorous requirements, but they’re not necessarily more qualified as tax preparers. You will want to interview your prospective CPA to determine how much of their practice they dedicate to helping someone with the same tax concerns as you.
Plan for next year today
To make next year’s filing even less stressful than this year, begin planning before the year is over. Maintain that tax file for important documents as they come in throughout the year, so you do not have to pull it all together this time next year. If your refund is getting dangerously close to you having to pay, update your Form W-4 now to increase your withholding. Also, determine if putting more aside into your 401(k) or HSA could benefit you in the future.