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.