How to Prepare for Tax Season test

Taxes are a fun subject for very few people (i.e., CPAs). However, tax season does not have to be frustrating. While this article likely won't give you excited anticipation about tax season, we hope it will help you prepare as much as possible so you can be successful without all the frustration. Here are the three steps we recommend you should take to prepare for a successful tax season.

Get organized

By now, you probably have started to receive important documents through the mail such as W-2s from employers, dividend and capital gains forms from your brokerage firm, and other miscellaneous forms often mailed in January and February. The first step is to gather all your documents in one place as they arrive so that no piece of information gets lost and ends up costing you money in additional taxes later on. If you have requested to receive all of these documents via email, you can replace the traditional paper folder with one on your desktop. If you know yourself to be easily forgetful, consider taking a photo of each paper as it arrives and storing them similarly on your computer.

As each of those forms arrives, make sure you perform a quick sanity check to confirm no apparent errors are present. It will likely take some time to get a corrected form sent back to you, so catching those mistakes as early as possible will prevent delays as the tax filing deadline arrives.

If you are a business owner and have outsourced your bookkeeping, you are likely in excellent shape. Self-employed individuals who manage their books would be wise to double and triple-check that all entries are accurate, reconcile bank accounts, and properly store any receipts or other documentation in the event of future audits.

Once you are sure that you have all your tax puzzle pieces and things look right, it’s time to decide how you will file your taxes this year.

Decide whether to file on your own or use a professional

As our tax code has grown more complex over the years, the options to file - whether self-prepared or not - have also increased significantly. The choice between self-preparation and hiring a professional depends on your skill, desire, and time available to sort out your tax situation. Your filing complexity may also make self-preparation counterproductive since you are likely better off spending your time in more profitable activities than doing paperwork. In that case, please do yourself a favor and hire someone to do it for you.

If you decide to go the solo way, you can do so by completing the manual tax forms yourself, but that is cumbersome and time-consuming. It also puts you at risk of serious errors that can raise the likelihood of audits or penalties. If you are filing yourself, the better choice is to purchase a package like TurboTax to have a computer system spot common errors or alert you if something doesn’t add up. You can likely access significant discounts through associations, credit unions, or brokerage firms since TurboTax partners with those organizations to increase their tax preparation tool adoption.

Take action

Once your documents are ready, and you have decided how to prepare your return, let’s make sure it’s not left for the last minute to prevent delays in processing and potential penalties. The recommendation applies even if you do owe. The are many legitimate reasons why people pursue filing extensions. If you believe that is the best option for you, please consult with a tax professional to ensure you understand all consequences of that decision fully. Remember that an extension to file does not mean an extension to pay. You may end up paying additional fees and penalties even if your reasons to extend are legitimate.

Conclusion

By following these simple steps, you can rest assured that tax season is likely to go smoothly. Start by getting organized, decide how to file, and don’t forget to take action early. There will always be panicked taxpayers trying to get their returns together on the day of the deadline, but you don’t have to be one of them! If you want to learn more about how taxes work, be sure to check out our Master Class How to Build a Christian Financial Plan!

Leo Marte is a Christian financial advisor and CERTIFIED FINANCIAL PLANNER™. Abundant Advisors provides financial advice for Christians with convenient virtual meetings. Let’s talk if you are ready to make the next move.