How to Survive Tax Season in 5 Easy Steps
1. Gather Your Documents
You can’t file unless you have all the paperwork necessary to accurately fill out your tax return. This may include W-2s, 1099s, stimulus check letters from the IRS, or any child tax credit payments you received in 2021. We’ve broken down the types of documents you’ll need into several categories with examples:
- Personal Information
- Your social security number or tax ID number
- Your unexpired government-issued ID (if applicable)
- Your spouse’s social security number or tax ID number (if applicable)
- Your spouse’s unexpired government-issued ID (if applicable)
- Any stimulus payment (or economic impact payment (EIP) information
- Any Advance Child Tax Credit payments (if applicable)
- Dependent(s) Information
- The dates of birth and the social security numbers or tax ID numbers of any dependents you claim
- Childcare records with the provider’s tax ID number (if applicable)
- Form 8332, which is when a child’s custodial parent releases their right to claim a child to the noncustodial parent (if applicable)
- Income Sources & Income Adjustments
- Job – If you are employed, you will need a W-2 form. If you are unemployed, you will need a 1099-G form. If you are self-employed, you will need forms 1099-NEC and 1099-K. You will also need income records to verify amounts not included on your 1099, records of all expenses, asset information, home office information (if applicable), and records of estimated tax payments made.
- Rental Income – This may include records of income and expenses, rental asset information for depreciation, or records of estimated tax payments made.
- Retirement Income – This may include Social Security benefits, RRB income, pension/IRA/annuity income, and Traditional IRA contributions.
- Savings & Investments or Dividends – This may include interest and/or dividend income, income from stock sales, and other expenses related to investments.
- Miscellaneous Income – Jury duty, scholarships, gambling winnings, etc.
- Income Adjustments
- Home Ownership – Form 1098 or additional mortgage interest statements.
- Charitable Donations – Cash amounts donated to approved charitable organizations, such as religious organizations, schools, etc.
- Medical Expenses – Sums paid to healthcare insurance, doctors, hospitals, dentists, etc.
- Childcare Expenses – Wages paid to a babysitter or daycare for a child under age 13.
- Educational Expenses – This could include Form 1098-T from educational institutions, receipts for qualified educational expenses, or Form 1098-E for student loan interest.
- State & Local Taxes or Sales Tax – This could include the amount of state/local income tax or sales tax paid, the amount of real estate taxes paid, or the amount of personal property taxes paid.
2. Choose Between Standard or Itemized Deductions
To determine whether you should itemize or take a standard deduction, you will want to claim whichever option lowers your tax bill the most.
The standard deduction is a fixed amount that lowers the income you are taxed on. Your standard deduction is determined by your filing status, such as whether you are single, married and filing jointly, etc. Most taxpayers choose the standard deduction because it does the following:
- Lets you take a tax deduction even if you don’t have expenses that qualify for itemized deductions.
- Cuts the need to itemize deductions like charitable donations or medical expenses.
- Removes the need to keep receipts or records of your expenses in the event you’re audited by the IRS.
An itemized deduction’s amount differs from person to person. It is calculated by adding up applicable deductions, then subtracting that number from your taxable income. For example, you may choose this option if one of the following scenarios applies to you:
- You have itemized deductions that are more than the standard deduction you would receive.
- You paid mortgage interest on your home or real estate taxes.
- You had large, out-of-pocket medical or dental expenses.
- You made large contributions to charities qualified by the IRS.
3. Pick a Tax Software
One of the best ways for how to survive tax season is to select reliable tax filing software. Tax filing software helps you manage your tax filing on a single platform so you can easily keep track of your forms. It’s not only convenient, but many versions provide explanations of different tax laws or links to IRS publications to help you file with confidence. Whether you choose a free version or an upgraded paid version, tax software can save you time and stress this tax season.
Note: It’s important to select the correct tax year when purchasing tax software. Many online retailers still sell the previous tax year’s software. Additionally, double-check that whichever software you choose meets your personal computer’s requirements. Older computer models may not be able to support certain tax filing software.
Taking these questions into consideration can help match you with the best tax software for your needs:
- Do you want online or desktop tax software?
- What version do you need for your unique tax-filing situation?
- Are state tax returns and electronic filing included in the price?
4. Fill Out All Tax Forms
Once you have gathered all of the relevant paperwork needed and selected software, start filling out all of your tax forms. It’s crucial for you to fill out every tax form applicable to your financial situation, as errors can lead to being audited by the IRS. Situations that can lead to an IRS audit include math errors, failing to report some income, deducting too many business expenses, and so on.
To cover your bases, make sure you have all of your forms in one place and readily available when you start filling out your forms. Keep a calculator handy to add up any income or deductions not already calculated, and don’t be afraid to reach out to a tax expert for advice.
5. File Early
After completing all relevant tax forms, file your tax returns immediately. This is the fastest way to get your refund, especially if you file electronically. To get your refund even faster, set up a direct deposit so your refund is transferred straight into your bank account. According to the IRS, refunds should be sent in 21 days for people who opt for having their refund directly deposited into a bank account and file electronically.
Start Preparing for Tax Season Today
By following these simple steps, filing taxes doesn’t have to feel as intimidating or stressful as it can be. With proper preparation, tax season can pass by smoothly and boost your confidence for next year! If you need more information on how to survive tax season or helpful financial advice, check out our Bank of Bozeman personal finance resources. We cover topics ranging from filing taxes to general budgeting tips to guide you at every stage of your financial journey.