Seven Steps of Tax Filing Preparation
Your tax return filing may not be a cause for celebration but it’s for sure is necessary. However, you may seek expert help to relieve some stress. There is nevertheless a little bit room for your involvement in tax filing preparation. This, however, is not likely to take that longer. Below is a 7-step guideline necessary for your tax filing preparation.
1. Assemble all necessary documents.
A thorough assessment of your 1099s and W-2s is essential. Investors will find all their information of investment activities in 1099s. You need to go over them before just putting them on the tax return preparer’s table. Specifically, assess the cost basis of the tax ramifications.
2. Your Social Security Information must be accurate.
While providing information of your dependents, you need to make sure that the social security numbers are accurate. In addition to the $1,000 exemption, you can claim an additional $4,000. However, the newly reinstated tax rule maintains that in case of high-income taxpayers, this exemption may not be applicable. Besides, retirees may have to pay tax on the social security benefits they receive.
3. Sort out your financial statement.
Your investment and bank statements verify the deposits and reasons of payments, and trace the origin of any fund. For example, a statement may declare that the origin of a bank deposit is a tax-free gift, which is different from your earnings.
4. Sort out your financial records.
Business owners and entrepreneurs will find this step particularly useful. This requires serious thinking if you are one of those who lags behind in record keeping. Documents and receipts are well enough to substantiate any expenses. The IRS gives special importance to entertainment and travel expenses, which also includes costs like deductions for vehicle usage. Thus, proper record keeping is a precondition.
5. Go Over IRA Details.
A taxpayer’s contribution to any Roth or traditional IRA is $5,500. Traditional IRA deductions are now abolished for those who are actively participating in employer sponsored retirement plans. Although Roth IRA contributions are not deductible, they lead to tax-free payouts in the future.
6. Audit-proof charity deductions.
The current tax rule needs you to keep track of all cash-equivalent gifts or cash to charities. If the amount is $250 or above, you need to show records of proper acknowledgement. For any contribution lesser than that, any other appropriate statement will suffice. Properties with appreciating value require stricter substantiation.
7. Set up a meeting.
Finally, you need to fix an early meeting with your tax return preparer. This will shrug off any potential discrepancies and problems. In that way you can be confident that your return is in good hands.
To start preparing your tax return, do not wait until the last moment. Your chances of getting refund in the soonest time possible depends entirely on how sooner you provide the necessary documents.