African american male hands holding broken pencil with tax form 1040 and trashed tax forms
As the tax deadline approaches, this can be a stressful time. This is particularly true if you are not sure if you will owe money to the IRS. Having a game plan in place to organize and execute getting your taxes done mitigates the anxiety that builds up from procrastination.
Gathering information
If you haven’t already, start building a tax file for all the tax statements that have begun to come in. Getting it all together saves the hassle of having to stop in the middle of your tax preparation. Visit your checking, savings, and brokerage accounts online for 1099s. Check with your mortgage provider for statements on interest paid. If you have an escrow account, this may also include property taxes. If not, check your local jurisdiction online to download a statement.
One way to “de-stress” your tax preparation is to know in advance if you and the IRS agree on the facts of the previous year. Nothing is more annoying than preparing your return and then getting that letter in the mail from the IRS saying that they found a discrepancy. It can slow down the pace of you receiving a tax refund. You can view your official transcript with the IRS online account by visiting Your Online Account | Internal Revenue Service (irs.gov). (One hurdle to accessing this account has been removed with the biometric data requirement going away.)
Getting your tax filing done
One recent survey shows that almost half (45%) of its respondents use some form of tax planning software with the rest choosing to hire a tax preparer in person or virtually (38%) and the remainder preparing it the old fashioned way with preparing and mailing the forms in themselves. I find people with simple tax situations (no businesses, no investment real-estate, and little to no investment income) are generally satisfied with using some form of tax filing software. (One thing that can get overlooked is that there are several options to prepare your taxes for free if you fall below a certain income threshold.) Over 94% of individual tax returns are filed electronically.
Choosing a tax preparation method has a lot to do with your personal preference. If you prefer to have a person prepare your return for you and your situation is relatively simple, a national chain franchise like H&R Block, Jackson Hewitt, or their local equivalent could be your cheapest and quickest solution. Just be aware that there is a wide variation in skills and experience among the people who work in these companies.
If your situation is complex or if you have lingering issues with the IRS, you may want to consider an Enrolled Agent (EA) or Certified Public Accountant (CPA) who specializes in individual taxes. Enrolled Agents are authorized to represent you with the IRS and earn their status either through experience as a former IRS employee or passing a 3-part comprehensive IRS test on individual and business tax returns. You can search for a local one here. Like Enrolled Agents, CPAs can represent you with the IRS and have even more rigorous requirements, but they’re not necessarily more qualified as tax preparers. You will want to interview your prospective EA or CPA to determine how much of their practice is dedicated to helping someone with the same tax concerns as you.
Plan for next year’s taxes today
To make next year’s filing even less stressful than this year’s, begin the habit of tax planning before the year is over. Maintain that file for important tax documents as they come in throughout the year, so you do not have to pull it all together this time next year. If your refund is getting dangerously close to you having to pay, update your Form W-4 now. Look at your return last year to see if you are inadvertently creating more tax with the way you invest. Determine now if putting more aside into your 401(k) or HSA could be beneficial for you in the future.
