Taxes are one of those topics people hate to talk about or even think about, especially if they end up owing money in back taxes every year. That’s why many taxpayers wait until the very last moment to prepare for tax season. It’s also why nearly 14 million Americans find themselves receiving threatening letters from the IRS and in some sort of collection proceedings.
With the new Biden administration taking office in 2021, more tax changes are almost certain. COVID relief is another factor to account for, and things are changing almost daily. So it’s never too early to start preparing for tax season.
Our firm specializes in helping people with back tax debt settle with the IRS, but often, the best tax resolution is simply doing it right ahead of time.
In order to help you minimize your tax headache, we wrote this article to help you before you find yourself in tax trouble. Here are three simple steps to start preparing now for tax season.
With that said, let’s jump into the article on how to prepare for tax season.
1. Get Your Paperwork Organized
If you’re rushing around at the last minute to find all of the paperwork that you need for filing your taxes, you’re making tax season harder on yourself than it needs to be.
Start organizing all of the financial information you may need in order to file your taxes this year. It’s best to do this throughout the year rather than at the last minute to ensure that you don’t miss anything.
We suggest making a checklist of all the documents you’ll need to gather such as;
Income from your salary/main job via a W2
1099 income you might have earned throughout the year on any side gigs or one-off projects
Cryptocurrency account statements
Savings account that earn interest
Any asset sales
A list of qualifying expenses and deductions you think you qualify for with proper documentation. Contact your tax expert for a list of expenses and deductions you can take.
Failing to report income or having questionable expenses are two of the biggest pitfalls we see with taxpayers who find themselves in tax debt or getting audited. Make sure you have documentation for everything.
Another factor that’s changing things for the 2020 tax season is COVID. Make sure to document your financial situation and how it was affected by COVID, this could lead you to find tax relief as things continue to evolve in 2021.
2. Evaluate Your Tax Obligations, Filings And Compliance
As a small business owner, it’s essential to start working on your tax obligation management early on. You’re likely spinning a ton of plates and taxes are likely on the backburner, yet there are so many little things that can fall through the cracks. At this time, you should also consider income taxes, employment taxes, self-employment taxes, sales tax, and local taxes.
You should have already had your employees fill out new W-4 forms and have all your contractors turn in their W-9’s so you can provide them with 1099’s, but there’s a chance they may not have turned them in yet. Ensure that this is taken care of as early as possible.
If you find yourself behind on your payroll taxes or other business tax problems, contact our firm now. We help business owners negotiate with the IRS or state and find tax relief.
3. Ask Questions and Be Proactive
This step is necessary, but you may not feel comfortable doing it. It’s essential to ask the basic questions from your tax professional. What types of receipts should you be saving? What will happen if I hire additional employees this year? What if I owe back taxes and can’t pay? Your tax professional should do more than just take the information that you provide them and file your taxes. If you owe back taxes and know you won’t be able to pay, and if your tax professional doesn’t have good answers, it could be time to consult a professional tax relief firm like ours.
The good news is the IRS has several debt settlement options including their Fresh Start Initiative and is generally willing to settle with taxpayers who have been blindsided by a surprise tax bill and can’t pay it off in full.
Hopefully, tax filing season will bring the big fat refund you are expecting, but it is important to be prepared for the unexpected. The new tax bill has unleashed a host of unintended consequences, including smaller refunds and surprise tax bills. By being prepared, you can reduce the pain of a surprise tax bill, so you can get on with the rest of your life.