5 Steps to Prepare for Filing your Taxes this Year

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It’s that time of year again. W-2 and 1099 forms are coming as you try to figure out the necessary steps to prepare for filing your taxes this year.

Getting prepared for this very important financial responsibility can be overwhelming if you’re not aware of what needs to be done.

There are so many documents to sift through and, if you’re itemizing, things to remember about your giving and donations.

You’ve probably found yourself wondering where you put those donation receipts from your local Goodwill as you work to scrounge up deductions.

Before you panic, I have a solution for you.

I’ve compiled a list of the 5 steps that you need to take to prepare for filing your taxes this year and beyond.

They are five things that will help you get organized and ready to prepare your own taxes or to have your filing outsourced. After having my taxes prepared by a professional and years of doing it alone, I’m confident that these steps will work in either situation.

Let’s prepare to file taxes.

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5 Steps to Prepare to File for Filing your Taxes this Year

Before you start any of your preparations, you’ll first need to decide if you’ll be filing your taxes on your own or using a tax preparation service.

There are benefits with both of these options so let’s explore the pros and cons of each.

Filing on your Own

If you’re a DIYer like me, then this option is very appealing. After all, you’ve probably already figured out how to do everything else. How hard could filing your taxes be?

Pros:
  1. Cost. The primary benefit of doing your taxes on your own is cost savings. Having someone prepare your taxes can cost upwards of $200. And though this fee can be deducted from your taxe refund (if you even receive one), it’s still a hefty price to pay for someone to input information that you could probably do on your own.
  2. Convenience. My fellow introverts will probably find value in the fact that doing your own taxes enables you to not have to leave the house. ☺️ Filing on your own gives you the convenience to be able to do it whenever and wherever you want. However, with the rise of online CPAs, this convenience factor may also be available when having someone prepare them for you.
Cons:
  1. Risk of Error. Let’s face it, you’re not a tax expert…otherwise, you probably wouldn’t be reading this post. This means that you could make mistakes that can be costly. Though DIY services through TurboTax and HR Block provide expert support, it won’t replace having a professional doing it for you.
  2. Time to File. Online filing services have made it easy and quick to do your taxes; however, it will still require your time. You’ll have to pull everything together, check for accuracy, and go through the process of filing. A small price to pay for not paying someon else to do it for you.

Hiring a Tax Professional

Now that my husband and I own a growing business, hiring a professional to do our taxes is on the horizon. Here are a the pros and cons that we weighed when deciding if now was that time.

Pros:
  1. Peace of Mind. As you begin to earn more, invest, and have multiple streams of income, your taxes can get a bit complicated. Having a professional who is trained to handle these complex situations brings about a peace of mind that’s invaluable. Professional, qualified tax professionals can assess your situation and take the best course of action to ensure that you don’t pay too much in taxes while also avoiding IRS troubles.
  2. Expertise. Do you know how the latest taxes laws impact you? Do you know the new rules on deductions? Are you even aware that the tax laws have changed? If the answer to all of these questions is no, then you probably need a tax professional to file your taxes. Tax professional have up to date knowledge on the latest tax changes that will impact how you should file. Knowledge is priceless when it comes to ensuring that you do things legally.
Cons:
  1. Cost. Peace of Mind and expertise doesn’t come without a price. If you’re going to hire a professional to handle such an important financial responsibility, there is a price to pay. As I mentioned, prices can be upwards of $200 or more depending on the complexity of your personal situation.
  2. Fighting for Priority. If you’re hiring a tax professional, it’s a strong likelihood that you’re not the only person that they’re preparing taxes for. That means that you’ll fall somewhere in a line of people waiting to have their taxes filed. Unlike doing it on your own, you have no control over when your filing will be complete. So, if you’re waiting on a refund, it may not come as quickly as it would had you filed your taxes yourself.

How to Prepare for Filing your Taxes

Now that you’ve decided if you’ll file your taxes or hire someone, it’s time to actually start preparing to file. Here are the five steps that you’ll need to take.

1. Learn the Deadlines

In order to prepare to file your taxes, you’ll need to understand the deadlines that you’re up against. There are three important deadlines that you should be aware of.

  1. Document deadline. Businesses, employers, banks, and philanthropic organizations are required to provide all tax documents to you by January 31st. It’s important to know this date because if you haven’t received documents that you were anticipating, you’ll need to follow up. These documents include, but are not limited to W-2s, Forms 1098, Forms 1099s, and charitable giving statements.
  2. Deadline to file an extension. Already know that you’re going to be late filing your taxes? Then you need to file for an extension. For 2020, extensions can be filed at IRS.gov, but they must be done by April 15, 2020.
  3. Filing deadline. The deadline to file taxes in the United Sates in April 15. Mark this date on your calendar to ensure that you haven’t missed it, especially if you haven’t filed an extension. If you file for an extension, the deadline to file is October 15, 2020.

2. Decide How You will File

Deciding how you will file comes in to play when you’re married. So, if you’re single, you can just assume that you’ll be filing as single.

As a married couple, you have the option of filing separately or jointly.

There are a few factors that go into making this decision, including, but not limited to:

  • Combined income amount
  • Your resultant tax bracket
  • Qualifying deductions

These factors will help you determine which course of action is appropriate for your specific situation. And, if you’ve decided to hire a tax professional, they can provide an objective, cost efficient recommendation.

The ultimate deciding factor in this situation is usually which option will require you to pay less in taxes as a household.

If you’re looking for more information to help guide your decision on this, I advise consulting a tax professional (they usually will answer questions free of charge) or check out this article from The Balance.

3. Collect and file all documents

Making sure that you’ve collected all of the necessary documents to file your taxes is a critical step. After all, you can’t file without them.

Here is a short list of things that you’ll need to file your taxes. You may refer to this post to make sure you have them, or download my free tax filing checklist which includes a full list of items!

Personal Information:
  • Your Social Security number
  • Full name, date of birth, & Social Security numbers for your spouse and dependents (if applicable)
Source of Income Forms:
  • Forms W-2
  • Forms 1099
Deduction Documents:
  • Mortgage interest payments & home tax documents
  • Charitable donation forms
  • Student loan interest documents

4. Estimate the Value of your Donations

If you donate to charity, there’s a strong likelihood that you itemize.

When it comes to charitable donations, such as clothes to Goodwill, you’ll need to be able to assigned a value to them to estimate how much your deduction is worth.

To ensure that you get this estimate as close a possible, I recommend that you do this at the time of your donation; however, if you haven’t, its ok.

Smaller items like clothing or small household appliances typically won’t flag the IRS to audit you and most tools have a built in estimator if you’re filing your own taxes.

Here are a few tips to use when donating items in the future so that this step isn’t a chore in the coming years.

Best Practices for Donating Items to Charity
  1. Take pictures of your items as documentation and reference. Upload them to a folder specifically for your taxes so that you can reference them later or have them in the event of an audit.
  2. Make sure that you receive a donation receipt from the charity. Places like Goodwill and the Salvation Army are great about providing you with a pre-dated, blank donation form for your records. Don’t just leave it blank, though! Be sure to reference those pictures to fill our the form with the items that you’ve donated.
  3. File your completed donation receipts in tax folder. If you don’t have a waterproof and/or fire resistant safe and filing system, I recommend that you invest in one to store all of your important documents. You can find an example here. Create folders for your financial, medical, and legal documents so that you can keep them protected and easy find them when needed.

5. File your Taxes

This is the grand finale!

At this point, you should be all set to either file your taxes on your own or provide the necessary, completed information to your tax preparer.

If you are filing your taxes on your own, be sure to give yourself enough time to make the tax filing deadline that you learned in Step 1. If you’re using a professional, I recommend providing this information as soon as possible so that there are no delays in them filing for you.

Once you’ve filed your taxes, there is one last step that you’ll need to do.

After You’ve Filed your Taxes

The last and final step of the tax filing process is printing and storing your tax return information. If you’re having your taxes prepared, you’re likely going to have your returns given to you in a nice branded folder. You can toss the folder, but be sure to keep the documents inside.

The IRS recommends keeping your tax returns for at least 3 years in case you are audited.

Be sure to store these in your file box with all of your other important financial, medical, and legal documents.

Conclusion

There are a lot of things to remember when preparing to file your taxes. Don’t hesitate to save this post to your favorites or to your Pinterest board to reference later.

If you need quick reference for all of these things to remember, download a free copy of my Tax Preparation Checklist that’ll help you prepare for filing your taxes!

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