Taxes Overview: How to Begin?

tax preparation

There are numerous methods available to most people for filing their annual federal income tax returns. Often, you can do it yourself by using the IRS paper forms, e-filing or using a tax return software package. Regardless of the method you use to file your return, there are several steps you must take to be ready.

Steps to Complete Your Tax Returns

First, start early. Even if you think you may owe taxes, do not wait until the last minute. Gather all the paperwork you will need. This includes all the forms that show earnings from your job and the amount of taxes withheld. This is the W-2 form your employer provides and the form for any work you did where taxes were not withheld. If applicable, you will need forms from your investment broker and bank showing the interest earned during the past year. Retired persons will need the forms that are sent by the company managing their pensions, 401K, IRA, or annuity accounts, as well as the form provided by the Social Security Administration or other federal agencies. If you received unemployment benefits during the year, you should get a form showing the amount of your total benefits and the amount of taxes withheld.

Next, you will need the documents that verify the deductions you are claiming, such as charitable contributions and medical expenses. You will also need to know the combined state and local sales tax rate in your area.

Finally, you will need the Social Security numbers and dates of birth for yourself and all the dependents you claim on your tax return.

With everything on hand, completing the tax return will be less daunting than you might imagine. The next step will be to find the appropriate forms. Most forms are filed electronically via the Internet. There are forms on the IRS website where you enter the data and file, as well as paper forms available at most United States Post Offices. If you are due a refund. it can be deposited into your bank, or a check can be sent to you, which takes longer. You will be advised regarding the available methods for paying any taxes that may still be owed.

Reminders

If you believe your deductions will be less than the standard deduction, you can usually get by using the 1040EZ short form. If you plan on itemizing your deductions, you will need to file the 1040 long form. As your income picture becomes more complicated, using a tax preparation program might be advisable, since it may alert you to possible deductions, will review your math, and most will assist you if there is an audit. There are also some free programs on the Internet that provide limited assistance at no charge.

If you do not understand something, check the Internal Revenue Service website. Many questions can be answered by reading a couple of pages or talking to an IRS representative.

The main thing to remember is to start early so you will have time to gather your records and get your questions answered. This will allow you to file on time and avoid any late penalties.

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