Looking forward to a tax refund this year? If you’re like most Americans, you’ll get one. The IRS reported that 122 million people received a refund in fiscal year 2020.
You may be excited for that refund, but you’re likely dreading the time it takes to complete your filing. And for good reason. The IRS estimates that Americans spend 13 hours preparing and filing taxes each year.
Fortunately, you can minimize the amount of time you spend preparing to do taxes. It just takes a little knowledge and some planning ahead.
Do you need to file taxes?
While most Americans need to file a tax return, if your income falls under a certain threshold, you don’t need to file. The threshold depends on several factors, including your income and your age.
But even if you’re not required to file, there may be situations in which you would want to file. For example, you may be due a refund. The only way to claim your refund is to file a tax return.
If you’re unsure of your return status, the IRS can help determine if you need to file and if you can expect a refund.
Documents you need to file taxes
Preparing to file taxes can be overwhelming. It’s hard to know where to start.
Begin by gathering all the necessary forms and paperwork in one place. The IRS divides the tax return into four categories: personal information, income, adjustments and deductions.
You’ll need the following information to get started:
- Personal information. You’ll need full names, social security numbers and dates of birth for all individuals included on your tax return. This includes your dependent children and spouse, if you’re married and filing jointly.
- Proof of income. All forms of income need to be included on your tax return. Many Americans will only need the W-2 statements provided by employers. Remember, though, that tax refunds, investment income and dividends are also considered income. Other, less common forms of income that may apply are gambling winnings, alimony and rental income.
- Adjustments are items the IRS allows to reduce your gross income. Don’t overlook these important documents. Reducing gross income can reduce the amount of taxes you owe. Adjustments included on your W-2, such as 401(k) contributions, don’t need additional documentation. Documentation for student loan interest and IRA contributions will be provided by your financial institution. You may also need to provide documentation for adjustments like moving expenses and energy-efficient home improvements.
- Deductions are key — they reduce the amount of taxes you owe. The IRS offers a variety of tax deductions. Review the deduction list to make sure you don’t miss any. Education and childcare costs, as well as most business expenses, are all allowable deductions. Be aware that each type of deduction has its own rules. Follow all guidelines and keep documentation.
If you can’t find your tax documents
If you’ve lost a needed tax document, you may be able to receive a replacement. For documents that are provided by a business or financial institution, such as W-2s or 1099s, contact the source for a replacement. For charitable contributions, donation records for amounts over $250 should be kept by the charity.
For other lost documents, start by checking an institution’s website. Questions about tax documents are common, and organizations will usually post contact information.
You may need to reconstruct other records, such as medical and business expenses, from your own banking records. If lost records can’t be located, consult a tax preparer for filing advice.
How to file your tax returns
Once you have all your documents, you can start the filing process. The IRS continues to offer paper tax forms, but electronic filing (e-file) options are popular for many reasons, like added security and timeliness.
When you e-file taxes, you submit all records through a secure web portal. E-filing also reduces the time needed to send and process your tax return. You can speed the process even more if you elect to have refunds deposited to your bank account.
If you’ve missed some tax filings
Some people avoid filing taxes because it’s overwhelming. Others avoid filing out of fear of owing more money. Whatever the reason, not filing taxes is a big problem. Keep in mind that the penalties for failure to file taxes are bigger than late payment penalties. If time is running out, request a filing extension. You may need to make an estimated tax payment with your request. But you’ll give yourself more time to complete your filing without a penalty.
If you haven’t filed in previous tax years, it’s time to catch up. Tax credits and refunds are only valid for three years. If you don’t file within this time, you lose your credits and refunds. If you owe taxes, keep in mind that interest and penalties continue to grow. Delaying your tax filing only makes your situation worse.
You’ll need to use the tax forms and instructions for the appropriate tax year. The IRS only accepts e-filing for the current and previous two tax years. For older filings, you may need to submit paper forms. Once your late return is processed, the IRS will contact you about any interest and penalties.
Find tax filing help
There are many options for help with taxes. The IRS offers free services to assist taxpayers. Most tax services are available to all taxpayers. But the IRS does offer additional filing services to low-income taxpayers.
Tax professionals can help ease the burden. Just make sure you understand the qualifications of the person with whom you work. Some tax professionals are only qualified to file your taxes. Others are qualified to provide tax and financial advice along with tax filing services. Tax filing services, like TurboTax® and H&R Block®, are widely used. Certified public accountants (CPAs) and tax attorneys are resources for more complicated tax situations.
Preparing for next year’s tax filings
Want to make next year’s filing even easier? Here are two pretty straightforward ways to be ready:
Get organized. Create a central storage location to make finding documents and completing taxes easier. When tax documents are received during the year, file them in the designated location. You’ll reduce the amount of time you spend looking for documents and lower your stress.
Get assistance. Consider working with a tax professional. Many tax professionals can offer both filing services and tax advice. Quality tax advice can help you reduce your tax burden — and keep you on the right side of the law.
