Don’t Be Scared, Get Prepared for Tax Season
It’s a new year, which means we’ve passed through the most wonderful time of the year and are inching closer to another important annual event – tax season. It doesn’t matter if you’re outsourcing your tax filing to an expert or handling it on your own; you need to start preparing now if you want to avoid procrastination, potential errors with your finances, and unnecessary late fees which could amount to thousands.
New Era Debt Solutions proposes the following tips to get your taxes on track this year:
Gather all your income forms.
If you have held one job consistently for one year or more, tax filing will run relatively smoothly for you. But if you’ve worked for multiple companies, or had a number of freelance/contract jobs in the past year, it may take longer for you to gather all the documents that verify what you were paid in 2021. Legally, employers must distribute W-2 forms to workers by the end of January. You should receive 1099 forms if you are a freelance or contract worker or if you own your own business.
Keep personal information up to date and accurate.
If you got married, changed your address, or had any children since the last time you filed your taxes, your information needs to reflect these milestones. Remember, “dependents” doesn’t just refer to your children. If you’re responsible for your parents, in-laws, or have another person in your life who is financially dependent on you, don’t leave them out.
Double Check Your Documents
The key to a seamless tax season lies in careful planning. Don’t let your audit fears paralyze you; instead, take action now and double check that you have all your documents organized. The IRS won’t tell you if something looks wrong (that’s what they expect tax preparers to do), so pay extra attention to details and make sure everything is neat and tidy before you submit. The last thing you want is for an auditor to find a typo or mistake at a crucial moment because now he has more ammunition against you.
Be sure to double check all your documents before submitting; it’s just easier that way. Audits can be scary but there are plenty of steps you can take to make sure that doesn’t happen. As mentioned above, document organization is key: if there isn’t any evidence backing up a claim on your return, then there isn’t much they can do with it, so make sure all of your documentation is accounted for and in proper order before submitting.
Be aware of the new tax bracket percentages and rates.
Did you know that the IRS has issued new federal tax brackets this year? The IRS will make adjustments to existing tax brackets on an annual basis in the case of inflation.
According to irs.gov, these are the marginal rates for tax year 2021:
- 35%, for incomes over $209,425 ($418,850 for married couples filing jointly);
- 32% for incomes over $164,925 ($329,850 for married couples filing jointly);
- 24% for incomes over $86,375 ($172,750 for married couples filing jointly);
- 22% for incomes over $40,525 ($81,050 for married couples filing jointly);
- 12% for incomes over $9,950 ($19,900 for married couples filing jointly).
- The lowest rate is 10% for incomes of single individuals with incomes of $9,950 or less ($19,900 for married couples filing jointly).
Watch for recent changes.
There have been a lot of changes over the last few years during the COVID-19 pandemic. The tax brackets have changed as mentioned above and the IRS increased the standard deductions this year, for those not itemizing their deductions. There have also been changes with itemized deductions found on Schedule A. Other changes include the child tax credit, earned income tax credit (EITC), adoption credit and student loan interest deduction. Ask a tax professional or visit irs.org to learn more about the changes for tax year 2021.
Calculate your paycheck.
We’re only human and everybody makes mistakes. That also means that employers may make the mistake of withholding the wrong amount of tax from your paycheck. If your company is withholding less than what is accurate, you may face an unwanted tax penalty in the near future. Fortunately, the IRS provides an online Paycheck Checkup tool you can use to confirm that the correct tax amount has been withheld.
Don’t forget about deductions!
Who doesn’t want a lower tax bill? Tax deductions – you guessed it – reduce the amount you pay on your tax bill. But the only way you can claim a deduction is by having the proper documentation. You can file tax deduction claims for retirement account contributions, educational expenses (make sure you have a 1098-T on hand), charitable donations (keep your receipts!), and certain medical bills.
Should I Hire a CPA to Help Me with Taxes?
If you’re not ready to file taxes, you can easily lose thousands of dollars in credits and savings. A lot of people see filing their taxes as a burden, but once they get prepared and start seeing their refunds increase, they will see it as an investment rather than a chore. Don’t let your finances get messed up because you don’t know where to look or who to turn to for help when you need it most! Tax preparation isn’t as hard as people make it out to be if you use proper tax software; it makes doing your taxes much easier.
There are many different kinds of tax software available today including TurboTax and H&R Block. Both companies offer free consultations with accountants so you don’t have to worry about getting taken advantage by someone who doesn’t know what they are doing. For example, TurboTax offers free consultations with certified public accountants (CPAs) or enrolled agents (EAs). There are also many other sites like NerdWallet or even NewEra Debt Solutions which have great articles on how to prepare yourself for any financial situation life throws at you such as filing your taxes.
How to Stay motivated during tax season
Tax season can be stressful and frustrating. When you’re already stressed out by your normal workload, it can be easy to let tax season consume all of your free time. The best way to stay motivated during tax season is to set short-term goals for yourself (e.g., Find three receipts you will need by ‘X date’ when filing taxes).
Even if these small tasks aren’t directly related to tax returns, they help keep you on track and make sure you’re being efficient with your time. The more prepared you are at tax time, the less stressful it will be. And who knows—maybe your motivation will rub off on your coworkers and family members! If they see that you’re dedicated to finishing early, they might get on board too.
Here are some other ways to stay motivated during tax season:
- Keep a log of business expenses throughout the year so that you have them ready to go when tax season rolls around.
- Organize last year’s receipts.
- Know which documents will be needed in order to file your taxes.
- Look into hiring a professional.
- Make an appointment with a CPA early in January
Whatever the strategy may be, staying positive and motivated during tax season starts with the mindset, then it turns into action.
Tips for Avoiding Scams During Tax Season
Many Americans are afraid of talking to a CPA because they feel embarrassed by their finances or lack of knowledge. By preparing for tax season early and asking for help as soon as possible, you can eliminate these fears and make sure that your taxes are done correctly. Here are some tips on how to avoid scams during tax season:
- Never give out your Social Security number over the phone. A scammer will ask for it in order to steal your identity.
- Be wary of anyone who promises special deals on services like Turbo Tax. These offers almost always turn out to be fraudulent, so don’t fall for them!
- Never pay upfront fees for any service – ever! Legitimate companies won’t ask you to do so – if something seems too good to be true, it probably is!
- If you’ve been contacted by a company promising special deals or discounted rates, be careful. As with anything else, there are people out there looking to take advantage of others.
- To ensure that you aren’t scammed when filing your taxes online, do research before making any decisions about which website to use. If someone asks for money from you up front (or makes claims about getting back more than what you put in), run away! Do not get involved with such schemes; they usually result in even more trouble down the road.
Tax Season FAQs
How quickly will I receive my tax return after filing?
A majority of tax return refunds are issued within 21 days, but taxpayers that file by paper may have to wait months to receive a return. There are many other factors that can affect the speed of your refund such as: if there are errors in the filing, if the filing is incomplete, if the taxpayer was affected by fraud or identity theft, if the filing includes a claim for an Additional Child Tax Credit or an Earned Income Tax Credit, or if the filing includes an Injured Spouse Allocation form.
Because many taxpayers wait until April to file, filing earlier in the tax season tends to give you a better chance of receiving a refund more quickly as the IRS is dealing with a lower volume of returns at that time.
Can I call the IRS to help expedite my refund?
The IRS is immensely busy during the tax season and calling them will typically not speed up the process at all, but there are exceptions when calling them may help:
- If you’ve used the Where’s My Refund? tool and it states that you need to call the IRS to get more information;
- If it has been more than 3 weeks since you’ve e-filed, received the acceptance notification, and have yet to receive a refund;
- Or if you filed by paper over 6 months ago and have yet to receive a refund.