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April Will Be Here Shortly – 5 Steps to Get Prepared

In the blink of an eye, tax season is once again looming closer and closer. Once again, more and more people are scrambling to get all the necessary documents and paperwork in order so that they are good to go when the new year rolls around.

One of the biggest headaches many adults face every year is navigating the complex web known as the tax code. With literally thousands of pages and millions of words, everyone is worried about underestimating their tax responsibilities and getting in trouble because of it. Fortunately, there some good basic steps to take to make sure that does not happen.

Know and Understand Your Bracket

The first step in determining the correct amount you owe to Uncle Sam is to determine what brackets you qualify for. This will require you to determine the amount of taxable income you made in the prior tax year.

You will have to do a bit of calculating (or pay someone to do it for you), but once you have that sorted out you will be able to see which brackets apply to you. For more information regarding this, it is recommended that you visit this tax bracket and deduction guide by Doughroller to double check everything.

Compiling Your Documents

In order to properly determine your tax brackets, you will need to put together the necessary documentation. Whether it is a W2 from work or a 1099 for your business or a combination thereof, you will need to have all of them in place because each of them entails a very different tax jungle to navigate through.

Once you have all your categories in order, you will be able to properly proceed with the rest of the tax filing process. Making sure you have all the required documents is important to have squared away before you start filing your taxes. This is because you might miss out on very important deductions while filing if you do not have all of your necessary information ready to be referred to.

Worse yet, if you do not have all your documents when you file and end up underpaying, you will face very annoying consequences. Unfortunately, the taxman does not sympathize with people who did not file their taxes properly. If you did not put in the time to get everything right or did not consult with the proper experts, the responsibility of correcting the mistake and paying the potential penalties will be placed squarely on your shoulders. This can especially impact independent contract workers in the gig economy, better known as the drivers for Uber, Lyft, and for food app delivery services.

Updating Your Filing Status

The question of whether to file as single or married is a very important one for those with the option. This is because it can cause a dramatic change in the amount of taxes you are obligated to pay. One of the main tenants of the tax system is that it seeks to provide legal benefits to being a registered married couple.

This is done in order to encourage the activity of marriage as well as childbearing, hence the deductions allowed for each dependent child. It is highly recommended that you make sure you check the different bracket ranges for filing single and filing married. The difference between the two can surprise you. Make sure you pick the one that gives you the lowest tax bill possible.

Now, many people will assume that filing married and jointly will be the ideal situation for all couples. This might not necessarily be true. This is something to lookout for if you are a dual-income household. If you have more than one major breadwinner, you would be wise to calculate your tax bill filing jointly as well as separately. You might be very surprised at which one produces the lightest liability.

Filing Your Taxes

After you have collected all the documents, after you have considered all legal tax scenarios, after you have dug all the possible deductions that you qualify for, it is time to officially file your taxes. There are many outlets you can choose from to file your taxes.

If you still need assistance filing all the paperwork due to the complicated nature of the economic year you had, it might still be a good idea to sit down with a tax professional, either in-person or online, to go through all the tax forms you need to file so that you are assured that you are not missing anything and accidentally cheating Uncle Sam from what is due to him.

On the other hand, if you are one of the more standard or even easy cases, it might make sense for you to just file everything on your own without a second of professional help. Of course, you won’t ever be completely alone, thanks to the internet. In fact, there are quite a number of online outfits that will walk you through the entire process step by step, and all you need to do for them in return is to look at their sidebar ads.

Keeping Everything for a While

After going through what will almost certainly be a harrowing ordeal, many of us will instinctively want to take all our documents and papers, put them through a shredder, and host a barbeque with them. While understandable, it must be said that you would behoove yourself to instead put all of them in a filing cabinet in your basement for a few years.

This is because the IRS might wish to perform an audit on you and insist that you have the past three tax years’ records in useable condition for their convenience. So no matter how great your filing is in April, the most important advice might be to keep your paperwork for years into the future.

Categories: Life