Tax Prep 101: Everything You Need to Know About Getting Ready for Tax Time

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Lately I’ve been feeling a longing for more organization and less chaos. I have been overwhelmed with the the messes around me. Both big AND little. I’ve decided it’s time to take control, get organized, and declutter my little corner of the world. I also have some big projects that I’ve been wanting to complete around the house that should ultimately help with the mess and chaos.

However, I need my husband available to help me with these big projects so I’m looking for things that I can take off of his plate so he’s more available. One such thing that I can help with is the taxes. My husband may be an accountant but unlike what most people think he doesn’t specialize in taxes. In fact he does not like doing taxes and often delays filing ours until the last moment.

So what are things that I can do make the process virtually painless, help us file early, maximize our deductions and credits, save the most money in the process, and make sure we have all the correct information? Well, I’ve compiled a simple beginners guide to taxes just for you. I’ve even made a checklist of all the items you need to collect that you can download for free.

Here’s what I’ve learned and I hope it will be of help to you over the next few months as tax season sneaks up on all of us.

Gathering Tax Documents

Taking the time upfront to collect everything needed will ensure your taxes are filed accurately and efficiently.

The key tax documents you’ll need are:

• W-2 forms – These report wages earned and taxes withheld from employers. Request copies from any employers you or your spouse worked for during the tax year.
• 1099 forms – You’ll receive these forms independently reporting things like:
  • 1099-INT for interest earned from banks
  • 1099-DIV for dividends from investments
  • 1099-MISC for side work or miscellaneous income
• Receipts for deductions – For any expenses you plan to deduct, have receipts on hand as proof. This includes:
  • Medical expenses
  • Charitable donations
  • Business expenses
  • Education expenses
• Mortgage and student loan documents – Form 1098 reports mortgage interest paid. Any student loan interest paid will also need documentation.
• Child care records – If you paid for child care to enable you to work, gather total amounts paid and provider tax ID.
• Estimated tax payments – Total any quarterly estimated payments made.

Gathering everything early prevents a scramble as the filing deadline nears. Keep all tax documents organized by category to streamline filing.

Filing Options: Self or Accountant?

You have a choice when it comes to filing your taxes – do them yourself or hire an accountant. Both options have their pros and cons.

Doing Your Own Taxes

Filing your own taxes can save you money since you avoid accountant fees. With tax software like TurboTax or H&R Block, filing your own return is straightforward and guided step-by-step. The programs ask questions and help maximize your deductions and credits. You can import your tax documents directly into the software and e-file directly to the IRS when done.

However, self-filing does require you to set aside uninterrupted time to complete your taxes. You need to understand your financial situation, gather all required documents, and carefully input info into the software. If you have complex finances or limited tax knowledge, you may miss out on some deductions by self-filing.

Hiring an Accountant

The main advantage of using an accountant is that they are experts on current tax laws and guidelines. They can identify all possible deductions and optimize your return to maximize your refund. Accountants also save you time since they prepare your full return for you.

The downside is accountants can be expensive, with fees ranging from $200-500+ depending on your situation. You still need to gather all your financial documents and share with them. Communication errors can lead to mistakes, so you’ll want to review your return carefully before filing.

Overall, for relatively simple taxes, self-filing is likely the better option. But consulting with an accountant could be worth the investment if your finances are more complex.

Tax Software

Choosing the right tax prep software can make filing your taxes much easier. Here are some of the most popular DIY options for your tax return:

TurboTax

TurboTax is one of the most widely used tax software programs. They offer a user-friendly step-by-step interview process that walks you through each section of your tax return. TurboTax has several tiered pricing options depending on your tax situation:

• TurboTax Free – For simple tax returns. Allows you to file a basic 1040 form for free.
• TurboTax Basic – $40. W-2 income. Supports child care credit, student loan interest deductions, and earned income tax credit.
• TurboTax Deluxe – $70. Best for homeowners or taxpayers with investments or charitable donations. Includes all the features of TurboTax Free plus help with mortgage and home equity, charitable giving, and investment income and expenses.
• TurboTax Premier – $105. For taxpayers with rental property or self-employment income from business, partnerships, or S corporations. Has everything in TurboTax Deluxe plus rental property, partnership, S corporation income, and expenses. (This is the one that we use).
• TurboTax Self-Employed – $120. Specifically designed for self-employed taxpayers and independent contractors. Includes all Premier features plus section 179 deductions, business use of home, and self-employed retirement plans.

H&R Block

Another leading DIY tax software is H&R Block. Their user interface has large buttons and clean menus for an easy-to-use filing experience. Their pricing options include:

• H&R Block Free Online – For simple tax returns. Allows you to file a basic 1040 form for free.
• H&R Block Basic – $25. W-2 income. Supports child care credit, student loan interest deductions, and earned income tax credit.
• H&R Block Deluxe – $49. Itemized deductions, HSAs, moving expenses, child tax credits, education credits and deductions, investment income and expenses.
• H&R Block Premium – $75. Everything in Deluxe plus rental property, royalty, partnership, S corp income/expenses, foreign income, and tax prep assistance.
• H&R Block Self-Employed – $89. For taxpayers with business expenses. All features of Premium plus home office deduction, contractors, and self-employed health insurance deduction.

TaxSlayer

TaxSlayer provides affordable DIY tax filing with different packages based on your tax situation:

• Simply Free – $0 federal, $0 state. Free 1040EZ federal return and free state return. $39.95 for additional state filing. For W-2 income only.
• Classic – $22.95. Taxes for homeowners. Itemized deductions, education credits, child tax credits, interest/dividends.
• Premium – $42.95. Everything in Classic plus health savings accounts, self-employment income, rental property, moving expenses.
• Self-Employed – $52.95. Ideal for contractors, freelancers, and sole proprietors. Includes all Premium features plus deductions and income specific to self-employed filers.

Other Free Options

There are several other free tax filing programs out there that can be utilized based on your income, state you live in, and other eligibility factors. Check out How to File Your Taxes for Free: 6 Options for Free Tax Filing from NerdWallet for some of these other options and whether or not you may be eligible for any of them.

Just make sure that when choosing tax software you look for the features you need at a price you’re comfortable with. Reading reviews can help determine the best fit based on your situation, ease of use, and customer service.

The Importance of E-Filing

E-filing your taxes is highly recommended for several reasons:

• Faster Processing: E-filed returns are typically processed within 21 days, while paper returns can take 6-8 weeks. The IRS receives over 100 million returns during tax season, so e-filing helps speed up the process.
• Error Checking: E-filing software does calculations and checks for errors before submitting, reducing the chance of mistakes. Any errors are caught early on. With paper filing, errors can delay refunds and require amendments.
• Direct Deposit: By providing banking information, e-filed refunds can be deposited directly into your account, often within 2-3 weeks. Paper filers receive refund checks in the mail, which takes longer.
• Notification: The IRS will notify you once an e-filed return is accepted. With paper filing you don’t know if the return was received and accepted until the refund check arrives.
• Secure Recordkeeping: Electronic returns are safely encrypted and stored by providers. No worries about lost paperwork in the mail.
• It’s The Default: Nowadays e-filing is the standard, with over 85% of returns submitted electronically. Unless you have a special situation requiring paper filing, it makes sense to join the majority.

E-filing provides convenience, speed, and peace of mind. It’s easy to see why it has become the preferred filing method for millions of taxpayers.

Common Deductions

You may qualify for some common tax deductions that can help lower your taxable income and potentially increase your tax refund. Here are some deductions to look out for:

Home Office Deduction

If you use a portion of your home regularly and exclusively for business purposes, you may be able to deduct home office expenses. To qualify, the space must be your principal place of business or a space used to meet with clients. Deductible expenses include a percentage of rent, utilities, insurance, repairs, and depreciation.

Charitable Donations

Donations to qualified charitable organizations can be deducted on your taxes. This includes cash donations as well as donations of household items. You’ll need a receipt from the charity stating the date and value of your donation.

Child Care Costs

Some child care costs for children under age 13 may be deductible, such as expenses for babysitters, daycare, preschool, and summer day camp. Depending on your income, you may qualify for the Child and Dependent Care Credit, which can lower your tax bill. Keep receipts for all child care expenses.

Tracking deductions throughout the year will make tax time go smoother. Consult IRS Publication 503 for a full list of allowable deductions. With proper documentation, you can potentially lower your taxable income and maximize your refund.

Getting Organized

Getting organized for tax season is crucial. Here are some tips to keep your tax records in order:

• Set up a file folder or binder specifically for tax documents. Have a separate folder or section for each tax year. This keeps everything neatly organized in one place.
• Within each tax year section, create folders for different types of documents such as income statements, mortgage interest statements, property tax records, charitable donation receipts, etc.
• If filing your taxes digitally, scan documents and save them on your computer in a logical folder system by tax year and type. This makes them easy to access when needed.
• Label all folders clearly and keep them in a safe, secure space like a filing cabinet. This protects your sensitive financial information.
• Shred old tax documents when the recommended retention period has passed. Usually you only need to keep tax records for 3 years.
• Make a checklist of the documents you’ll need for your tax return and collect them throughout the year. Examples are W-2s, 1099s, tuition statements, and daycare expense records.
• Create a monthly reminder to collect any tax-related mail so you don’t misplace anything important. Setting up a system will save you time and hassle when tax season rolls around!

Tax Refunds

Most people look forward to tax season in hopes of receiving a refund from the IRS. Even if the money is expected, a large tax refund is easy to squander. Knowing how to get your refund quickly and then use it wisely can make a big difference to your family’s finances.

One of the fastest ways to get your tax refund is to choose direct deposit when e-filing your taxes. The IRS issues over 90% of refunds via direct deposit, and choosing this option means the funds get transferred right to your bank account within a couple of weeks of filing. You’ll avoid waiting for a mailed check and then having to deposit it. Just make sure the account and routing numbers you enter for direct deposit are accurate to avoid delays.

Once the refund arrives, it can be tempting to spend it on a shopping spree or vacation. But the smarter move is to use your tax refund strategically. Here are a few ideas:

• Pay off high-interest debt like credit cards. This instantly reduces the amount owed.
• Build up your rainy day savings fund. Having 3-6 months’ worth of living expenses in savings provides a cushion for emergencies.
• Make an extra mortgage payment. This directly lowers the principal owed on your home loan.
• Contribute to retirement accounts. Putting even a portion of your refund into an IRA or 401k gets decades of tax-deferred growth.
• Start a college fund. Use some of the windfall to open or add to a 529 plan for your kids’ future education costs.
• Invest in home improvements. Updating worn-out systems like your roof, HVAC, or appliances improves your daily life.

Getting a tax refund can be exciting, but responsibly directing those funds to improve your family’s financial situation makes the money go so much further. A little planning turns tax refunds into meaningful investments in your future financial security.

Avoiding Errors When Filing Your Taxes

Filing taxes can be overwhelming, especially if you’re new to managing your own finances and doing them yourself. While using tax software and e-filing helps avoid many math errors, there are still mistakes anyone can make that will cause your return to be rejected or audited. And trust me, the last thing you need is to have your refund held up or questioned. Follow these tips to file accurately the first time and get your refund as fast as possible.

• Double check your numbers and forms before submitting: It’s easy to transpose numbers or send an incomplete or wrong version of a form. Before you hit submit, take a few minutes to open each document again and confirm all the numbers match what you inputted into the software. Make sure you’re sending the final version of each required form.
• File early: Try to submit your return as early as possible, especially if you’re expecting a refund. The sooner you file, the sooner you’ll get your refund check. Filing early also gives you more time to correct any issues if your return does get rejected.
• Amend your return if needed: If you realize after filing that you made a mistake, you can amend your return. You’ll have to fill out and submit a correction form. Amending later can delay your refund, but it’s better to fix mistakes than leave them as-is if they would cause you to pay less or more tax than you owe.

By double-checking your return, filing as early as you can, and correcting any errors right away, you can feel confident you’ve filed accurately. Avoiding even small mistakes means you’ll get your tax refund quickly and not risk an audit. Taking the extra time ensures peace of mind during tax season.

Next Steps

I understand that taking control of your finances can feel overwhelming. A little planning ahead can go a long way to decrease the stress and overwhelm. A few tips to incorporate throughout the year include:

• Meet with a financial advisor. Sit down with a professional to review your full financial situation, identify ways to reduce your tax burden, and develop a personalized plan. They can look for overlooked deductions and make sure you are maximizing credits and contributions to retirement accounts. Their guidance will provide clarity and confidence.
• Adjust your withholding. If you received a large refund, you may want to adjust your W-4 allowances so less tax is withheld from each paycheck. This puts more money in your pocket throughout the year. Likewise, if you owed a lot at tax time, increase your withholding to avoid penalties. Use the IRS calculator to determine the optimal allowances.
• Plan ahead for next year. Keep a folder or digital space to store receipts, mileage logs, donation records, childcare expenses, and other tax documents. This will save you time hunting down paperwork next tax season. Make note of any life changes like marriages, births, new jobs, or retirement contributions to determine how your taxes will differ. Getting organized early prevents frustration later.

Staying current on your taxes ensures you keep more of your hard-earned money while avoiding stress. Save important documents, adjust your withholding, and plan ahead to take make tax season easier and take control of your finances.

Happy Filing!

Don’t forget to download your free Tax Preparation Checklist to help you collect all the info you need to get you started.