28 Oct Three Tax Preparation Tips for Individuals

Posted at 17:12h in Tax by
1 Like

The time to plan for taxes isn’t April 14. You should plan in the fall for the next year, according to the Internal Revenue Service.

Step 1: Determine your filing status

If you’re like other taxpayers, you usually only think about your filing status when filing your taxes. However, this is something to think about all year, especially if it changes.

Your filing status is used to determine:

  • Filing requirements
  • Standard deduction
  • Eligibility for certain credits
  • The correct amount of tax

If more than one filing status applies to someone, they can use the Interactive Tax Assistant to help them choose the one that will result in the lowest amount of tax.

Your status could change if you get married or divorced, have a baby or adopt a child, or experience death.

If you experience any of these events before Dec. 31, your new filing status applies to the entire year for tax purposes.

Step 2: Recordkeeping

The IRS advises that the first step in implementing a tax plan is setting up a record-keeping system. Well-organized records make it easier for you, or your accountant, prepare your tax return. It can also help provide answers if, god forbid, your return is selected for an audit.

You should develop a system that keeps all your important information together and easily accessible. The easiest way to keep your records together is with a software program like Quickbooks. You could also use an old-fashioned filing cabinet.

The kinds of records that you should keep include receipts, canceled checks, and other documents that support income, a deduction, or a credit on a tax return. You should also keep records relating to property they dispose of or sell.

Overall, having records readily at hand makes preparing a tax return easier. In general, the IRS suggests that taxpayers keep records for three years from the date they filed the return.

Step 3: Credits and Deductions

Now that you have all your records in order, you can check your tax credits and deductions and see if there is anything you can do before the end of the year to maximize your return.

Taxable income is what’s leftover after someone subtracts any eligible deductions from their adjusted gross income, which is determined by using either a standard or itemized deduction. As a general rule, if your itemized deductions are larger than your standard deduction, you should itemize. You can use the Interactive Tax Assistant to see what expenses they may be able to itemize.
Here are a few examples of deductions you can claim:

• Parents may qualify for credits like the child tax credit and child and dependent care credit.

• Families with students may qualify for the American opportunity credit or lifetime learning credit.

• Low to moderate-income taxpayers may qualify for the earned income tax credit.

Properly claiming these tax credits can reduce taxes owed and boost refunds.

If you want to develop a plan for your 2020 taxes, contact us at 615-893-6666 in Murfreesboro or 615-444-4125 in Lebanon.