If you have never hired a tax preparer to do your taxes, you may have missed out in many ways. A tax preparer is a trained professional who computes and files tax returns for taxpayers, and there are many reasons to work with one.
First, you want your tax return to be accurate and on time. If you submit an erroneous return, the Internal Revenue Service (IRS) can audit your taxes and penalize you. Late filing attracts a penalty of five percent of the taxes owed every month. Additionally, you may be eligible for many tax credits and deductions that you never claim.
To understand your state and federal taxes and avoid mistakes in your return, work with a qualified tax preparer. This guide highlights the details of tax preparation and explains how a tax preparer can help.
Information Required to File a Tax Return
You should collect all the tax documents you need from your employer, bank, and other relevant entities before getting started on filing your tax return. Ensure the details on each form match your records.
Below is the information you need to file.
You must declare the total income you made during the tax year. Example of documents for reporting earnings include:
- Form W-2 from your employer to report annual income and the total tax withheld
- Form 1099-MISC to declare your earnings if you’re an independent contractor
- Form 1040 for sole proprietors to report their profits or losses
- Various Form 1099 for report earnings from investments
- Form 1098 for mortgage interest paid
- Form W-2G for gambling winnings
The information you need to provide is unique to your situation, and a financial advisor can generate your holistic financial picture, guide you on the forms you should complete, and optimize your taxes. Here are the basic steps to filing your taxes.
If your employer withheld some taxes during the previous year, enter that information at the end of your tax return. It will reduce the total amount of tax you’ll pay.
Tax Credits and Deductions
Tax credits can reduce your income tax for the year. Examples of tax credits that eligible individuals claim frequently include:
- Earned income credit
- Child tax credit
- Residential energy credit
Unlike credits, deductions lower your taxable income. They don’t reduce the taxes owed dollar-for-dollar, however. To claim a tax credit or deduction, you must disclose your filing status, a list of deductibles, number of dependents, and other data the IRS might require. Provide documentation like receipts to support your credits and deductions.
Personal Tax vs.Business Tax
Form 1040 is the primary tax return for everyone, but opening a business introduces other tax returns. These include.
- Sole proprietors: Form 1040
- C corporations: Form 1120
- S corporations: Form 1120S
- Partnerships: Form 1065
- Nonprofits: Form 990
Individuals file tax returns once every year, but businesses have to file their taxes quarterly with deadlines on January 15, April 15, June 15, and September 15. Use IRS Form 4868 to request an extension if you cannot file your federal income tax return before the deadline. The government may also postpone due dates for various reasons.
Why Tax Preparation Can Be Difficult
Filing a tax return can get complicated, especially when you have multiple sources of income. You may thus not be sure how to legally adjust your taxable income to reduce tax or raise your tax refund, for example.
Some deductions and credits you might not remember to claim from the IRS include:
- Student loan interest
- Energy credits
- IRA contributions
- Educator expenses
- Tax-deductible alimony
- Contributions to self-employed retirement plans
- Self-employed health insurance premiums
- Medical Savings Account contributions
- Moving expenses
Businesses qualify for far more tax deductions than taxpayers filing as individuals or as families. This is because business owners have more expenses, meaning they also have more opportunities for write-offs. Using a personal vehicle for business errands can qualify for a deduction, for example. Nearly every business expense is deductible, but you must provide receipts and supplemental documentation as proof.
With so many variables affecting taxes, filing an accurate return can be confusing if you aren’t a tax professional. Moreover, tax codes keep on changing, further complicating the tax preparation process.
How a Tax Preparer Helps in Filing Taxes
A tax preparer prepares tax returns on behalf of individuals and business organizations. The greatest advantage of hiring one is his or her vast knowledge of tax laws and procedures. The professional knows which deductions and credits to claim to reduce your income tax without breaking the law, thus helping you maximize your filing process.
Tax preparers will:
- Interview the taxpayer to determine the correct tax form to fill.
- Gather the client’s financial information for the tax year.
- Calculate taxes owed or overpaid.
- File or assist clients with completing various tax forms.
- Employ appropriate adjustments, credits, and deductions to minimize taxes.
- Advise taxpayers to ensure they fill out their tax forms correctly.
- Evaluate clients’ tax returns to detect errors.
- Represent taxpayers during IRS tax audits.
- Educate taxpayers on smart tax strategies.
The tax preparer can help you to file your return electronically or through the mail. Electronic filing offers advantages like detecting inaccuracies, quicker processing, and prompt refunds. The only catch is you must provide your tax preparer with your PIN and the adjusted gross income for the previous year.
Wealth Management and Tax Planning
Tax considerations play a significant role in shaping your finances, and understanding it can be just as complicated. For example:
- The tax code is complex, and your situation may change over the years.
- The IRS taxes various investments differently. The rate for bonds and mutual funds is usually similar to income tax, for example, but collectibles have a tax rate of 28 percent.
- There are also tax implications of retiring abroad.
If you’re not sure how to file your taxes, partner with a trusted wealth management professional. You’ll enjoy services like individual tax preparation and planning, estate and trust tax preparation, electronic-filing of tax returns, IRS representation, and others. The professional can shed light on U.S. tax and international income, Social Security, pension, and investments.
Let a Tax Preparer Optimize Your Taxes
Whether you’re filing personal or business tax returns, working with a tax preparer can save you time and stress — and you can rest assured of an optimized and accurate return that won’t result in an IRS audit. Contact Bogart Wealth today to discuss your concerns about tax preparation and wealth management matters.