In the United States, filing an annual tax return and paying income tax by April 15 each year is required. Preparing taxes may seem overwhelming, but it doesn’t have to be. To make things easier, here’s a list of documents and information to collect before preparing a tax form or visiting a tax professional.
January is when people start to receive documents needed in order to file taxes. These are usually provided by employers and can include W-2s (a form that shows earnings for the prior year) or 1099s (another type of earnings form).
Names, dates of birth, and social security numbers are required for filing taxes. This information will also need to be listed for any family members (including spouses and dependents). To have a refund electronically deposited to a bank account, gather the routing and account numbers for the account. Any banking employee can help find this information and it is often listed on a financial institution’s website. Refunds can also be issued by check.
The Internal Revenue Service (IRS) will sometimes grant credit for necessary purchases made over the course of the year. These are called deductions and they reduce the amount of income required to be reported. When income is reduced, people may have to pay less in taxes or receive a higher refund. Gather receipts or other proof of purchase for expenses that may be able to deduct. This is called “itemization.”
Possible sources of itemizations:
- Cost of running a business, such as rent, business supplies, etc.
- Charitable donations
- Medical expenses, including the cost of health insurance
- Childcare expenses
- Educational expenses
- Retirement savings
- Energy-efficient home improvements
Taxes can be prepared by hand and mailed to the IRS. They can also be filed online using tax preparation software. Small business owners often use accountants to help prepare tax documents, as accountants are well-versed in tax law and can help people properly file and be smart about deductions and tax preparation.
Many local organizations help people prepare taxes. Volunteers in the community often can help with taxes for little or no cost.
The deadline for filing taxes is April 15 of every year, but starting the process much earlier – even months earlier than the deadline – is highly recommended. Filing early means the work is finished and stress is reduced. Refunds will be deposited sooner, and the taxes are complete for the year.
After taxes are filed, keeping the documents together, including receipts and other paperwork, is a good idea. Store all documents in a secure location, along with the tax returns, for safe record keeping. Next year at this time, the process will be even more simple!