Your Ultimate Tax Prep Guide
We have compiled these easy steps to make filing your taxes—whether you're filing on your own or using a professional preparer—a stress-free task.
It all starts with organization
1. Get your personal information handy.
Make sure you have the names, dates of birth and Social Security numbers of everyone in your household. Also, make sure you have your primary account information for direct deposits so you can get your refund faster (our routing number is 321180379 and always posted at the top of our website for your convenience).
2. Collect your income statements.
If you're employed full-time, you'll most likely get your W-2s from your employer around the first of the year. There's also 1099 forms for other types of income, such as self-employment, investments, and retirement distributions; and K-1s for any partnerships in which you participate. It's good to keep track of all the income you have coming in so you can be sure you're not missing any when you go to file.
3. Gather your receipts.
This is usually the most time-consuming one. But if you make an organization plan at the beginning of the year, it will help immensely. IRA and HSA contributions should get you a 5498 form. If you own a home, you'll receive a 1098 form for mortgage interest deductions. But you'll have to collect most of the information documenting allowable deductions, such as business expenses. Download and print summaries of the prior year's transactions for each credit card, and review each transaction to determine whether it may be deductible. Use a marker to highlight the transactions that may affect your filing for easy identification later. You can use a similar culling process for canceled checks.
If you own a small business, perform freelancing jobs, or have other side income, you need to keep your business income and expense items separate from your personal information. Some expenses are deductible for a business but not a personal filer. If you have questions about what type of information to save, review Schedule C of Form 1040.
Review your filing from last year
For most of us, the changes from one tax year to the next are relatively slight. Previous tax returns are excellent reminders of areas you can easily overlook, such as interest or dividends, capital loss carry-forward balances, and infrequently used deductions. Keeping spreadsheets containing the information from Form 1040, Schedules A, C, and D will let you quickly check whether you’ve overlooked an income or expense item, as well as the year-to-year changes in amounts.
Fund IRAs to allowable limits
If you participate in an employer-sponsored individual 401(k) plan, 403(b) retirement plan, or other qualified retirement plan, the deadline for contributions is Dec. 31. However, you can still fund an IRA until the filing deadline. If you're younger than 50 and contributed less than $6,000 for the 2021 tax year, or you're older than 50 and have contributed less than $7,000, you have until the filing deadline in 2022, to invest money on a tax-sheltered basis for 2021.
At First Tech, we make it easy to open traditional and Roth IRA accounts with great dividend rates. Remember, Roth IRA contributions are not deductible, but grow tax free. Traditional IRA contributions are fully deductible depending upon your income, filing status, and participation in an employer plan.
Make charitable donations
Donations made to charities are deductible from your annual taxable income. If you are planning to take a tax deduction for the donations you made to charity, you'll need to be able to back them up with receipts showing the date, value, and charitable organization.
Automate or outsource tax calculation and filing
When deciding whether to use a professional preparer or a software program, consider your income, the complexity of your return, unusual events that significantly affect your income or expenses, and your concern about a tax audit.
If your adjusted gross income is below a certain threshold, the IRS offers free tax filing software for taxpayers. To determine whether you're eligible for the free software, check last year’s return for your adjusted gross income (AGI), which will appear on Form 1040.
The sooner you file, the sooner you'll get your refund. Procrastinating can really add to the stress of filing. Unless you owe taxes, you should file as early as possible. If you don’t think you can file by the deadline you can apply for an extension, but will still have to pay (if you owe) by the deadline, otherwise you will be charged a penalty or interest. To file for an extension, submit IRS Form 4868. This will allow you to extend your filing date.
Prepare for next year's tax filing
If you got a large refund or owed a large check, consider reducing your withholding allowance so your employer withholds more money from your paychecks during the year, or increase the withholding allowance to have more money distributed to you each pay period.
If your employer offers flexible spending accounts for health care, child care, or commuting expenses, take advantage of them early in the year. This allows you to pay those expenses with pre-tax dollars rather than after-tax dollars.
Knowing is half the battle
With the steps laid out for a successful tax filing, you should be feeling less stressed already. The effort you'll spend organizing a filing system, storing receipts and other information year-round that will pay off in spades in filing income taxes next year. You got this!