Personal Finance

Three Ways to File Your Taxes

Filing taxes is an annual responsibility, and you have several options for how to do it. Understanding each method can help you choose the one that suits you best:

1. E-File: Going Paperless

Electronic filing, or e-filing, has gained popularity with around 126 million tax returns filed electronically in 2017. E-filing offers several advantages, including quicker refunds and built-in error checks for accuracy.

2. Tax Preparers: Going Pro

Given the complexity of the federal tax code, over half of U.S. taxpayers seek professional assistance. When opting for a tax preparer, ensure they possess an IRS Preparer Tax Identification Number (PTIN) and clarify their service fees upfront. If your tax preparer files 10 or more returns in a year, the IRS mandates electronic filing.

3. Paper Returns: Going Traditional

Filing a paper return can take six to eight weeks to receive your refund. Some instances require paper submission:

  • Living in a community property state while filing a separate return.
  • Claiming a dependent who has already been claimed.
  • Using a tax form that cannot be e-filed.
  • Filing before or after the e-filing window.

Organize Your Documents

Whether filing electronically or with paper, maintain organized records throughout the year. Sort your tax information into three folders:

  • Income: Include salary, dividends, interest, earnings, distributions, 1099s, and W-2s.
  • Expenses: Store records of charitable donations, mortgage statements, medical bills, childcare costs, utility bills, and non-reimbursable employment-related expenses.
  • Investments: Keep statements, purchases, sales, gains, losses, interest, dividends, cost bases, annual retirement plan contributions, 1099s, and K-1 forms.

Checklist for Tax Season

When preparing for tax season, follow this checklist to stay prepared:

  • Gather Personal Information: Collect Social Security numbers and employer details for everyone on your return.
  • Collect Income Data: Don’t forget income from investments, alimony, rental properties, home businesses, or lottery or casino winnings.
  • Itemized Deductions and Credits: Keep receipts and documents for deductions such as child care costs, education expenses, mortgage interest, and charitable donations.
  • Document Taxes Already Paid: Check your W-2 for deductions made by your employer, and if you’re self-employed, maintain tax records.
  • Note Life Changes: Report significant life events like marriage, divorce, having a baby, or relocating to a new state.
  • Stay Informed About Tax Changes: Keep up with evolving federal tax laws, especially if your income exceeds $250,000 per year.

By considering these filing options and maintaining organized records, you can navigate tax season more efficiently and accurately.

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