Does the thought of tax season make you break out in hives? Fear no more! Our easy, step-by-step guide will help you prepare your taxes without even breaking a sweat!
Most people dread this time of year because of all the filing and paperwork involved with taxes. Thankfully, it doesn’t have to be that way! Preparing your taxes can actually be a simple, no-stress process if you do a little work on the front end. All it takes is some organization and time.
Step 1: Gather Your Tax Documents
In order to do your taxes, you need to collect all of your tax documents. Think of it as a scavenger hunt, if that makes it a little more fun! What forms will you need? Here are a few to keep in mind:
- Mortgage interest statements
- Investment income statements
And if this is your first season filing taxes as a married couple, congrats! There are several tax tips newlyweds should know. But getting hitched isn’t the only major life change that might require some additional paperwork. To keep your tax prep running smoothly, here are a few more documents you may need to add to your list:
- Form 8822 (if you moved)
- SS-5 (if you changed your name)
- W-4 (to adjust tax withholdings based on your new household income)
Income and investment interest forms should be mailed to you by January 31, so keep an eye out for those documents. If you haven’t received your tax statements by the first or second week of February, call the necessary people to be sure you receive your paperwork in plenty of time to get your taxes done.
Taxes shouldn't be this complicated. Let us help.
Afraid of forgetting a document you’ll need around Tax Day? To help you get all your ducks in a row, download our free tax preparation checklist.
Step 2: Choose Between the Standard Deduction or Itemizing
When you file your taxes, you have two choices: Take the standard deduction or itemize your deductions. This is a pretty big deal, because tax deductions lower your taxable income—and the lower your taxable income is, the smaller your tax bill will be!
So, how do you decide which option to take? Well, the standard deduction for the 2020 tax year for single filers is $12,400 and $24,800 for married folks filing jointly. If you can write more than those amounts off your taxes for the year, you’re better off itemizing. If not, save yourself the hassle of digging through filing cabinets for old receipts and just take the standard deduction.
If you do plan on itemizing deductions, you’ll need proof to back up your claims. So, don’t forget any receipts for deductions and tax credits like:
- Education costs
- Charitable giving
- Medical expenses
When in doubt, it never hurts to reach out to a tax pro and get their advice on how to do your taxes this year.
Step 3: Pick a Filing Status
Your filing status helps you figure out what you’ll need to do to file, what your standard deduction is, your eligibility for certain credits, and how much you’ll owe in taxes.
There are times when picking your filing status is pretty straightforward—like if you’re single—and other times when you might qualify for more than one filing status and it’s not so clear.
How do you figure out which filing status to pick? There are five different statuses to choose from:
- Single. If you’re not married, divorced or legally separated, or widowed before the tax year, you’ll file as a single taxpayer. Simple enough, right?
- Married Filing Jointly. You’re married and both of you agree to file a joint return. In most cases, married couples usually save more by filing jointly.
- Married Filing Separately. If you’re married and for some reason don’t agree to file jointly—maybe you want to be responsible for your taxes only or filing separately results in a lower tax bill—you can use this filing status.
- Head of Household. This one’s a little tricky. To qualify you must have paid for more than half of the household expenses for the year, be unmarried, and must have a “qualifying child or dependent.” So, if you’re a single parent or taking care of an ailing family member, you might qualify to file as head of household.
- Qualifying widow(er). If your spouse dies and you don’t remarry in the same tax year, you can file jointly with your deceased spouse. For the two years following the year of death, you can use the qualifying widow(er) filing status if you choose to.1
In most cases, folks will either file as single taxpayers or married filing jointly. But there are some rare instances where you might consider filing separately or another filing status if it applies—so always do the math.
Step 4: File Your Taxes
Once you have all your documents organized, you’re ready to file your taxes!
According to the IRS, most Americans chose to hire a professional (58%) to help them file their tax returns electronically. The rest decided to file on their own using tax software or going old school and filing by paper and mailing it in.2
But which filing option should you choose? Let’s take a closer look at online versus tax pro filing options to help you determine which is best for you.
Online software can be straightforward if your situation is pretty simple and you’re planning to take the standard deduction. However, if your tax return is more complicated—like if you own a business or know you need to itemize your deductions—it’s worth it to hire a tax professional.
If you’re still not sure which option is best for your situation, take our simple quiz!
You don’t want to wait until the last minute to file your tax return! And trying to schedule a meeting with your tax pro a week before Tax Day is like trying to find tickets for Hamilton the day of the show—good luck trying to do either. And besides, there are plenty of reasons to file your taxes early, like less stress and protection from tax fraud.
Step 5: Get Organized for Next Year
If you end up with a big tax refund or a large tax bill, you probably want to go ahead and adjust your withholdings so that you’re not taking too much or too little out of your paycheck for taxes.
And one more thing: Once your taxes are signed, sealed and delivered to the IRS, you might be tempted to celebrate by starting a bonfire and burning all those receipts and tax forms in a blaze of glory… don’t do that.
Instead, promptly file any tax documents and important receipts when you receive them so you don’t have to search the house for them next spring. Buy a few manila folders, an accordion file or a filing system that will hold your tax documents and save those documents for at least three years. You might need them if the IRS comes knocking.
File Your Taxes With a Pro
See? That wasn’t so bad, was it? If you just take a little time and energy to implement these five steps throughout tax season, you’ll be set. Plus, you’ll eliminate the stress and worry if you’re organized on the front end.
If you’ve decided to streamline the process and avoid potential tax filing mistakes, our nationwide network of tax Endorsed Local Providers (ELPs) can help. These tax professionals will take the time to explain your taxes and make sure you get every deduction you’re eligible to receive. Don’t wait until the tax crunch.