Are you ready for tax season? Filing taxes is an unavoidable task that has to be completed year after year. Whether you are new to the process or have done it more times than you can count, preparing for tax season can be tedious, confusing, and frustrating if you’re unsure where to start. In this blog, we’ll dive into how you can be equipped with what you need to conquer your taxes.
What Are The Key Documents You Need to Gather Before Tax Season?
Since many Americans don’t understand tax credits or tax brackets, it’s no wonder why so many struggle to know what to do. It’s important to know all the documents you need to keep the process as easy and smooth as possible. Here are the essentials you need.
1. Proof of Income
The government needs to know how much you have earned over the last year. To account for this, you need to fill out different types of forms depending on your employment.
W-2 Forms
If you are an hourly or salaried employee, you will need a W-2 form, which includes your wage and tax statements. Your employer is responsible for giving one to you at the beginning of the year and to the Internal Revenue Service (IRS). If you have more than one job, you will need a W-2 for each one since your wages will vary.
1099 Forms
These are similar to W-2s, but they are for self-employed individuals, contract work, and other sources of income. Depending on what you’re filing your taxes for, there are different 1099 forms categorized by what the income comes from, such as unemployment, clients, or award money.
2. Investment Statements
Along with showing your income, make sure you have statements about your capital gains and losses from investing. You’ll likely need to record these earnings on a 1099 form.
3. Banking Information
As you begin diving deep into the weeds of tax season, you’ll want to be sure you have a direct deposit set up and ready to go with your financial institution. That account will make any refunds simple and easy to move, so you won’t have to scramble to look for login information for your account.
4. Potential Tax Credits
Tax credits are qualifying expenses that decrease the amount of money you will be taxed. Dependents in your household, such as children or relatives who depend on you financially, have expenses that could count towards a tax credit. Expenses could be their education, childcare, etc. Keep a record of these expenses for when you need to file to see what is eligible.
5. Tax Deductions
If you want to receive deductions on your taxes, several expenses could qualify, such as:
- Educational expenses
- Charitable giving
- Property taxes
- Medical expenses
Look into each of these to see what you’re eligible for to decrease what you’ll owe.
What Are Important Deadlines to Have in Mind?
As you gather everything you need for filing taxes, it’s essential to know a timeline for when documents are available and when to file them. While Tax Day is April 15 each year, some situations require individuals to pay their taxes each quarter. These dates are crucial to remember as you consider paying your taxes, whether that’s once or over time (Note: these dates could shift if the day lands on the weekend.)
January 15: 4th Quarter Estimated Tax Payment for Previous Year
This is your last chance to complete payment for the previous year’s taxes.
January 31: W-2s and 1099 forms should be distributed to employees by their employer or contractors.
February 18: Specific forms for 1099 and W-2s need to be submitted.
April 15: Tax Day
This is the big day when filing is organized and completed. Here’s what you’ll need.
- 1st Quarter Payment for Current Year
- Pay any taxes owed
- Make IRA and HSA contributions for the previous year
- File any federal income taxes
June 16: 2nd Quarter Estimated Tax Payments for Current Year
October 15: If you filed an extension for federal income taxes, it’s time to pay them.
Keep these deadlines in mind, and add any relative dates for state taxes or unique 1099 forms. Be sure to check with your state’s Department of Revenue for the specifications.
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What Are Common Mistakes to Avoid When Filing Taxes?
Disorganization
As you can tell, there are many moving pieces when trying to file your taxes. The worst mistake you can make is not to be organized and not know what you need. The fact that you’re reading this blog is a significant first step in educating yourself and being prepared.
Not Knowing Correct Personal Information
Making mistakes on paperwork is easy, so be sure your information is accurate and matches official documents. Here is what you should look out for regarding your own information and your dependents.
- Updated home addresses
- Correctly spelled legal names that match Social Security card
- Put in the correct Social Security number (SSN)
If you are filing for dependents, ensure you also have the following.
- Date of birth
- Length of time they’ve lived in your home
- Relationship (child, grandchild, parent)
- Any income they have
Not Filing at the Right Time
Set reminders for yourself to know when you need to file your taxes. Also, be cautious of filing too early. You’ll want to be sure you have all the information you need first.
Not Filing Correctly
When you submit your taxes, you need to know if you’ll need to file in one of the following categories:
- Single
- Married Filing Jointly
- Qualifying surviving Spouse
- Head of Household
Failing to select one can confuse and affect your tax liability.
How Can You Protect Yourself from Tax-Related Identity Theft?
Now that you know what you need for tax season, you must know the risks of tax-related identity theft. Fraud can run rampant and threaten your financial security if you do not put up the necessary safeguards. Here is what you can do:
Keep your documents in a safe place. Storing your Social Security number, birth certificates, and other essential documents in a lockbox or protected place can ensure they don’t accidentally get ruined or lost. Once you are finished with a document containing any financial information, shred it instead of throwing it directly into the trash.
Establish unique login information. Creating unique passwords and PINs for your online banking and taxes can help protect your money on digital platforms.
Stay on a secured Wi-Fi. As you make transactions, connect to a trustworthy Wi-Fi, and don’t connect to one if you are unfamiliar with the source.
Watch out for fraud. Phishing scams are tactics used by fraudsters trying to steal sensitive financial information. If you receive a strange message that claims to be from the IRS and demands you pay immediately, this is likely a phishing text or call. Remember to stop, slow down, and think before you act. The IRS will never contact you through text messages, social media DMs, or unsolicited emails.
Tackle Tax Season With Leaders Credit Union
Handling taxes can be tedious, but it isn’t impossible. We want to help you experience a smooth tax season this year and the years to come. Leaders Credit Union is here to help you grow in your financial journey. If you have any questions, reach out to one of our Financial Champions.
For specific questions regarding your tax situation, we recommend contacting a tax professional. Expecting a large tax return? Learn how to create better savings habits with our Beginner's Guide to Establishing Savings.
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