5 Steps to Prepare for Tax Season

5 Steps to Prepare for Tax Season

People may find preparing for tax season stressful. However, a little early planning and organizing can take most of the pain out of the process. These five steps will simplify preparations whether filing a personal return or one for a small business.

1. Choose the tax prep method

The first step is to decide if you will prepare the return yourself or if you prefer to hire a tax preparer. Individuals using tax software get a handy step-by-step walk through that offers a series of questions to help determine income, expenses, deductions, and tax liability. Hiring a tax professional means you don’t have to be an expert on the most recent tax law changes.

If you hire a preparer, do some research first. Choose someone with a Preparer Tax Identification Number (PTIN). This confirms the individual is authorized to prepare and submit federal tax returns. Know the rates the expert charges; opt for a provider who bases set fees on the complexity of the return and not someone who charges a percentage of any refund.

2. Gather the tax forms needed

Save time, whether preparing the return or using a professional, by gathering all the tax forms needed to complete the filing. For personal returns, you may have W2 forms for each job, various Form 1099s for Social Security benefits, dividends, interest, contract work, and more. You may also need a Form 1095A for the purchase of health care coverage from a government marketplace, 1098s for mortgage interest, tuition payments, or student loan interest payments, as well as a Form W-G for gambling winnings.

In addition to some of those, a small business return may also require other forms, including Schedule C or 1099-Misc for a sole proprietorship, Form 1120 for a corporation, Form 1120S for an S corporation, or Form 1065 for a partnership.

For both personal and business returns, you’ll need a copy of last year’s return.

3. Collect the relevant receipts and documents for tax prep

This is one area where advanced planning is especially useful. Collecting and organizing receipts throughout the year and placing them in the right file storage makes retrieval quick and simple. Consider using color-coded folders, with one color for income, one for expenses listed on bank or credit card statements, and a third for expenses recorded in other forms, such as payment receipts.

For personal returns, if you plan to itemize deductions, you need records of medical costs not covered by insurance or reimbursed, property tax records, bank and credit card statements, job- or investment-related expenses, and receipts for charitable contributions over a certain amount.

Small business owners should also gather payroll documents, partnership agreements, asset purchase details and receipts, depreciation schedules, and personal and business banking and credit card statements. They should also make a list of income and expenses that includes:

  • Sales records
  • Returns and allowances
  • Office and office equipment rent
  • Paid insurance premiums
  • Professional fees paid to accountants, attorneys, and others
  • Payments made for contract labor
  • Transportation and travel expenses
  • Advertising expenses
  • Payments for phones, communication devices, computers, and internet service
  • Office supplies and purchased office equipment

4. List necessary tax prep personal information

In addition to your Social Security number (SSN), collect the numbers for any dependents claimed on the return. Also, list the addresses of vacation or rental properties you own. If you purchased or sold property during the year, you’ll need records of the date(s) purchased, the buying price, the date(s) sold, the selling price, and any expenses from the purchase or sale.

5. Pay attention to deadlines to prepare for tax season

For personal returns, the filing deadline will usually be April 15, while there may be quarterly filing deadlines for businesses. If you find you need additional time, file for a six-month extension, using Form 4868 (personal returns) or Form 7004 (business), to avoid late penalties and fines. You may also get an extension by paying all or part of your estimated liability and showing that it is for an extension; doing it this way eliminates the need to file a separate form.

Get ready for tax season with supplies from Quill and make the whole process of submitting tax returns as easy as possible.