Money

How to Prepare for Tax Season

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Tax season: it's the best time of the year, said no one ever. But even though paying taxes may be a hassle at best and a financial challenge at worst, there are steps you can take in advance to make the process move smoothly. Knowing how to prepare for tax season is the first step, and it includes things you can do even before the new year begins.

Here, we'll take you through the most common tasks involved in preparing for tax season, whether you do your taxes yourself or have a professional prepare them. Either way, some advance, proper preparation will make it easier to do your taxes — and may even save you some money.

When can you start filing taxes?

Wondering when to start your taxes? The IRS will begin accepting tax returns in 2022 on Monday, January 24, whether you file electronically or through a hard copy return. Tax season continues until Monday, April 18. Why not April 15? That's Emancipation Day in Washington, D.C., so you've got a few extra days, wherever you live. 

If you're in Maine or Massachusetts, you have even more time: taxes there aren't due until April 19 due to the Patriot Day holiday in these states.

If, for any reason, you're unable to file your taxes when they're due, you can request an extension. That gives you until Monday, October 17, 2022, to get them filed. 

However, note that an extension to file your return doesn't grant you an extension of time to pay your taxes. If you owe the government money, you may be subject to penalties unless you estimate and pay taxes by the April 18 deadline, even if you're not submitting a return at that time.

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What do I need to file my taxes?

What you need to prepare your taxes varies from person to person, but there are some items that almost all taxpayers will need to have on hand. Here are the most common:

  • Any W-2 forms you've been given by your employer(s). Employers are required to have these to you by the end of January each year.
  • Form 1099. Banks and other agencies issue these for a variety of reasons. If you've received unemployment compensation, dividends, or distributions from a pension, annuity, or retirement plan, you'll have at least one 1099.
  • Form 1099-K or 1099-MISC. If you're a worker in the gig economy, you may receive one or more of these forms from your clients or customers.
  • Form 1099-INT, if you were paid interest on any account.
  • Records of transactions made with virtual currency, such as Bitcoin. 
  • Form 1095-A, if you've received advance tax credits for health insurance purchased on the marketplace.
  • Letter 6419, if you've received advance child tax credit payments.
  • Letter 6475, the Economic Impact State, to determine if you're eligible to claim a Recovery Rebate Credit.

How do I file my taxes?

Once you've answered questions such as when can we start filing taxes for 2021? and What documents do I need to file taxes? It's time to look at the ways you can go about doing your return and submitting it — or having it done for you. One option is to do it yourself. 

The IRS has made tax documents easier to understand in recent years, so doing your taxes doesn't have to be the boondoggle it once was. Filing online is easy and means you'll get your refund that much sooner. Tax programs such as TurboTax and H&R Block's tax software walk you through the process, making it possible for most individuals to file their own taxes.

However, if you have a complicated financial situation with multiple investments or other complications, it may be worth your while to hire a tax professional. They'll have a list of tax forms needed for complex finances and help you make sense of extensive paperwork. 

There are several national chains such as H&R Block and countless small businesses that focus on tax preparation for individuals and small businesses. A quick Google search should lead you to those in your region.

What do you do if you miss a year filing taxes?

If you need to know how to prepare for tax season after missing a year, or if you're late filing and haven't asked for an extension, the sooner you act, the better. There's no penalty if you file late and are owed a refund. When you owe the government money, you'll face penalties and interest charges. 

If your taxes are significant enough that you could benefit from a payment plan, the IRS has an installment agreement. Use the online payment agreement tool, filling it in as completely as possible. You'll be notified if you've qualified for installment payments. Both individuals and businesses can apply. 

Using your refund to plan for the future

If the government owes you a refund, consider using the refund to purchase an Ethos life insurance policy to help create a legacy for your family and loved ones. 

Policies are available for reasonable rates, even in a volatile economy.

Life insurance can also be a cost-effective tool if you find yourself owing money. Learn how debt can impact your life insurance rates and how it can help your heirs pay off debt, whether it's tax-related or not, if you aren't in the picture to help them. 

Calculate your needs for life insurance online at Ethos, and let one of our life insurance policies help provide financial peace of mind for you and those you love.

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