“Nothing is certain except death and taxes,” Benjamin Franklin famously said. However, if you understand what’s involved and how to prepare, you can certainly make the experience of filing each year more convenient. In this post, we’ll cover the importance of planning, documenting income and expenses, why deadlines matter, options for filing, getting a refund faster, and reviewing your return. Let’s get started!
Planning pays dividends
Gathering the information you need and determining your filing status before you begin will streamline the process and ensure that you are acting in your own best interest.
Collect and secure vital information such as:
- Social Security Numbers (SSNs), legal names, and birthdays of anyone listed on your return
- A copy of your federal tax return from the prior year, if applicable
- Your bank routing and account numbers, in case you decide to select electronic deposit for your refund, which is typically faster than a paper check1
- Childcare payment receipts with the licensed provider’s ID number(s), if applicable
Determine your filing status
Your taxpayer filing status determines the rate at which your income is taxed. It may also determine what tax forms you need to use, how much money you may owe, and whether you are eligible for certain tax credits or deductions.
The five filing statuses are:
- Married filing jointly
- Married filing separately
- Head of household
- Qualifying widow(er) with dependent child
Each status has different requirements and benefits, so choosing the one that best applies to your situation is important. If you’re unsure about which status to choose, the Internal Revenue Service (IRS) provides an online tool to help determine which one best applies to you.
Both sides of the ledger: income and expenses
Although you may be eager to start filing – especially if you think you might be getting a refund – it’s better to wait until you have all of the forms that document both your income and your expenses.
Income: What if I have additional income other than what’s on a W-2?
You’ll need the following:
- W-2 forms from all employers during that tax year to show any income you earned in the past year and how much in taxes you’ve paid on those earnings. It’s best to elect to receive your W-2 electronically, if available, because you can access the document sooner. Otherwise, employers have until Jan. 31 to mail them.
- 1099 forms (from banks, issuing agencies, or other sources) are a record of any money you received or were paid from anyone else besides your employer. Some examples include: unemployment compensation (1099-G), self-employment income (1099-K, 1099-NEC)*, retirement account distributions (1099-R), savings account interest (1099-INT), dividends (1099-DIV), stock sales (1099-B), and Social Security income (SSA-1099).
If you are unsure about whether you need to file at all based on your income, take this quiz on the IRS website.
*A note on the gig economy: The rules around what the IRS considers income are complex. If you think that the money you earned from your side gig shouldn’t be reported on your federal taxes, you should consult a tax professional before filing. Otherwise, you might receive an IRS notification for not reporting your income correctly, which could expose you to fines and penalties, including interest on late payment.
Expenses: Should I itemize expenses or take the standard deduction?
To find out what the standard deduction is for your filing status, take this quiz on the IRS website. If you think you may benefit from itemizing deductions, consider whether any of these common situations eligible for itemizing as deductions might apply to you:
- Student loan interest (form 1098-E received from your servicer)
- Mortgage loan interest (form 1098 received from your lender)
- Home office expenses, if you are self-employed (calculated on Form 8829)
- Charitable contributions (see Publication 526 for more information)
- Health care expenses (see Publication 502 for more information)
- State and local taxes paid
Bonus: What about credits?
While deducting expenses can reduce the income upon which you pay taxes, credits can reduce the amount of tax owed or increase the refund amount. Even if you don’t owe any tax, you might get a refund by claiming certain credits. Popular tax credits include the following:
- Child Tax Credit
- Child and Dependent Care Credit
- Earned Income Tax Credit
- Home Energy Tax Credits
- Retirement Savings Contribution Credit
- Clean Vehicle Tax Credits
Make sure to allow plenty of time to prepare your tax return. By rushing at the last minute, you risk making mistakes that could be costly. The tax filing deadline each year is typically April 15, but federal holidays and other factors may cause this to shift. Check the IRS website for the current year’s due date so you know how to plan.
If you do not pay taxes owed by the tax filing deadline, you may be subject to late payment penalties and interest. The IRS offers several payment plans, including options for those who are struggling to pay.
You can file for an extension if you need more time to prepare your taxes. Before you file for an extension, though, realize that you’re still responsible for paying taxes owed by the deadline. Extra time to prepare your taxes doesn’t delay the time to pay what you owe, but it keeps you from paying the penalty.
Options for filing
Once you have all of your documentation together, it’s time to file your taxes. You have a few options: file online (e-file) on the IRS website, use a tax software, or hire a tax professional to file for you. Sure, you could file a paper return – and you might have to as a fallback option in certain situations – but if you’re expecting a refund, e-filing is much faster.
These options, in order, range from least to most expensive and from simpler to more complex - tax filing needs.
File through the IRS Free File Program
The IRS partners with tax preparation and filing software companies to provide the Free File Program for eligible taxpayers. If you are eligible to use IRS Free File (your adjusted gross income is $73,000 or less), this is a great first choice. You will answer a series of questions, and the guided preparation software does all of the math for you.
Use commercial tax preparation software
Commercial tax preparation software options like TurboTax and H&R Block (others are available) walk you through a series of questions, fill out the correct forms, and help ensure you claim all the proper credits and deductions. The cost depends on the services you select and the complexity of your filing, but generally ranges between $69 and $230 for the best-rated software.
The software will file your tax return securely through an IRS-approved electronic channel, and IRS computers automatically check your tax return for mistakes. The IRS will send it back to you immediately for simple mistakes to fix before accepting your tax return.
Hire a tax professional
If you are overwhelmed by filing your income tax return and/or just want the peace of mind in knowing it’s done correctly, you can hire a tax prep professional, typically a certified public accountant (CPA). This option is also beneficial if your tax situation is particularly complex.
Some pro tips to consider when hiring someone to do your taxes for you:
- Ask for recommendations from a friend or family member.
- What is their background or experience?
- Are they licensed?
- How well do they communicate with their clients during the process?
- What is the cost to use their services?
Get your refund faster
Are you expecting a refund? Direct Deposit is the best way to get your tax refund faster than a paper check.1 Get started2 with Porte® to have your refund securely deposited – then keep getting paid up to 2 days faster3 by setting up payroll Direct Deposit4 in the app!5 Porte is mobile banking with in-person service you love.
Porte is a mobile finance app, not a bank. Banking services provided by Pathward, National Association, Member FDIC.
Review your tax return before hitting “submit”
Even the most seemingly simple mistakes can cause tax return processing delays at the IRS, which also slows down any refund you might expect to receive. Double-check all numbers, especially SSNs, bank account information, and all information you entered yourself. CPAs make mistakes, too, so even if you hired a professional tax preparer to assist, check his or her work as well.
Federal tax law changes often, and what may have been deductible last year may not be this year, so give those details a second look before filing. By scouring your return, you can be more certain that the information is correct and that you are claiming all the deductions and credits to which you are entitled. This may seem tedious, but it could save you money in the long run.
Also important: Never throw away your tax documents, even after you’ve filed your return, and always keep copies of your entire return. The IRS recommends keeping these records for at least three years in case you need to go back and reference them later.
This blog is not intended to provide any tax, legal, financial planning, insurance, accounting, investment, or any other kind of professional advice or services. To make sure that any information or suggestions in this blog fit your particular circumstances, you should consult with an appropriate tax or legal professional before taking action based on any suggestions or information that we provide.