How To Understand Tax Preparation

Make a schedule to concentrate on your tax return preparation. Provide time to compute personal finances or complete company financial documents.  Work on your balance sheet, profit and loss accounts, trial balance, and financial statement. Check your records and files of receivables, payables, daily bills, and the other financial documents of your business.

Tax return preparation and the filing of your income tax returns can be very tedious, but with the advancement of technology, the process can now be effectively done and is completed in less time through electronic filing. There are even courses and software on tax preparation available to help with tax filing.

If your status is "tax simple" you can have your tax return prepared and filed online or the IRS can do the return for you. But if you are a regular taxpayer, you need time to prepare documents and study the new tax rules to be implemented. The IRS has provided online, for free, Publication 17 that contains everything you need to know about tax return filing.

To start the actual tax preparation, first fill out and complete the income tax return forms. Have all your supporting documents as reference for the amounts. Refer to your list of new U.S. tax codes and changes in the tax rules, to prepare additional documents or gather additional information.

Put together your needed receipts: W-2s for reported wages, 1099Bs if you have sold stocks and bonds, 1099s for reported dividends and interests, and your 1098s for your interest and tax deductions.

Compute your tax filing options based on your status. Decide on whether to file your income tax returns as joint returns that usually have the lowest rates, or file as married filing separate. Consider your status as head of the family as well.

Compute your adjusted gross income, found on line 37 of your Form 1040. The allowed standard deductions include student loan interest, IRA and qualified pension contributions, alimony, moving expenses, account deductions, and medical savings. If you are self-employed, include deductions for health insurance and deductions allowed for half of your self-employment taxes paid.

Compare the total of your allowed itemized expenses including interests, taxes, medical expenses, charitable contributions, casualty and theft losses, and other miscellaneous expenses, to the sum of your total standard deductions. Use the higher amount.

Following the current rules for exemptions, deduct all qualified exemptions, including that for full-time students under age 24. Your deduction for exemption may decrease, as your income increases.

Review the list of potential credits you are eligible to claim. If you have children, review all the child tax credits or child and dependent care tax credits you can qualify for. There is also an allowable adoption credit. Check if you qualify for foreign taxes paid, education credits, withholding taxes, credit you get for estimated taxes paid, and excess Social Security payments withheld, if you have worked for two or more employers within the year.

How fast you get your refund will depend on how you file your tax returns. Decide on whether to e-file or paper file. With electronic filing you can get your refund back faster. For paper filing, your refund will be directly deposited in your bank account.

Consult a tax professional to give you advice on what processes or documents are still missing.


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