There’s an old saying that goes like this: “April 15 is the cruellest day of the year — it’s the day you discover what you are.” The good news is that if you haven’t filed a full tax return in a while, you probably aren’t going to be stressed when it comes to filing one this year — especially if you know the best places to go for help. To make it easier, we’ve put together a nine-step checklist to help you file your taxes.
Determine whether you need someone else’s help.
If your return is simple or straightforward, it might be best to tackle your taxes on your own to avoid having to pay someone else. If you are looking for a way to save money on your return, filing online may be a good bet. The IRS offers free tax filing software online to help you do everything from the start of your return to file it electronically.
Hire an expert.
Once you’ve determined that an expert is necessary, there are many ways to find one. The obvious places to look first are in your phone book or local directory. You will want to be sure that the expert you are considering is properly certified and has experience and training in the area you need help. Only after finding out that they are qualified should you ask for their recommendations. Once you have their recommendations, locate and call at least three former clients for each one and ask questions about their overall experience with them. The more information is possible, the better.
Gather documents.
This one is pretty easy and straightforward — gather up all your documents! As a first-time filer, it’s likely that you have never had to think about what documents you need for your taxes. A good rule of thumb is to gather any document that has information about money or income. This includes pay stubs, bank statements, and W-2s for your job, as well as 1099s for freelance work you may have done over the year.
Super Tip: Know the difference between a W2 and 1099.
A W2 is an official form provided by an employer stating how much you made during the tax year. 1099 is a form that shows how much you made outside of work, such as money from freelance gigs or rental properties (if you earned more than $600 from either of these sources, you’d receive 1099). You’ll see your pay stubs on a W2, but you won’t on 1099.
Get Organized
Now that you have information that you need to complete your federal and provincial tax returns, it’s time to get organized. At this time, it would be a good idea to gather documents together that will enable you to complete your tax returns. What do I need? -Depending on whether you are self-employed or an employee, the information you will need to complete your tax return will vary. There is a tool from the IRS to help you determine how much documentation you will need to have before completing your return.
We recommend that first-time filers seek advice from a professional tax preparer or use tax preparation software to complete their return.
Get an EIN
If you’re an online business owner, you may want to consider getting an EIN. An EIN, which stands for an employer identification number, is a unique identifier issued by the IRS for tax purposes. It’s different from the SSN (social security number) you use when you report your income to the IRS. Although SSNs are often used as part of the EIN application process, you don’t have to provide your SSN to receive an EIN.
- You will need an EIN if you do business as a sole proprietor or an LLC.
- You’ll also need an EIN if you have a corporation to keep taxes separated between the two entities.
To find and obtain your EIN, you must complete IRS Form SS-4, Application for Employer Identification Number. One of the most common ways to obtain an EIN is by filling out and submitting this form online, by fax, or by mail. In situations where you need to verify or locate an existing EIN, EIN lookup tools such as EINsearch can also help confirm business identification details quickly.
Estimate how much time it will take.
Like most people, you’ll probably be looking forward to Tax Day, April 18, being over. But here’s the cold hard truth: All this planning and preparation is going to take up a lot of your valuable time.
It would help if you recognized this upfront so that you can plan your work accordingly. At peak times of the year, it can take up to five hours to complete and file a Form 1040 using tax prep software and another 40 minutes to print and mail your return or e-file your return.
Double-check your figures.
When you’re preparing your taxes, remember that numbers must add up correctly (for example, you can’t deduct your mortgage interest payments and have a home office deduction) and that all of the information you provide is accurate. It would help if you also kept in mind that the IRS may audit you.
Know Your Filing Status.
The first step is understanding your filing status. It’s important to remember that filing status impacts which income tax schedule you use when filing your taxes. Each filing status has different qualifications for exemptions and deductions.
Know Your Deductions.
Before you get started, familiarize yourself with all possible tax deductions available to small businesses and freelancers. Understand what expenses are deductible and which ones are not, so when filing time comes around, you won’t miss out on any savings available to you. Tax deductions can be very useful for small business owners, both new and seasoned. As a small business owner, you know that the success of your business depends on keeping costs low. Tax deductions help you accomplish this goal.
Final Thoughts.
Taxes are a necessary evil. They’re also incredibly complicated. The process can be overwhelming and downright frustrating. But it doesn’t have to be. It takes some time, but you can get through this process without tears and an IRS audit with a little preparation.