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It can be intimidating to think about preparing a federal tax return. You can find yourself not even wanting to consider it because of everything from economic stimulus payouts to advanced child tax credits that could make things more complicated.
If that's the case, take a deep breath, gather your thoughts, and then proceed by using the following 5 steps:
You may have a scant few documents to gather or an overwhelming amount, depending on how intricate your financial position is. Many will come in envelopes plainly designated as tax-related in the mail, including those from your company or banks where you have interest-bearing accounts. Others may require an independent search on your part.
Considering that many providers no longer mail paper tax paperwork, be careful to visit all of the websites for your various investment accounts.
You can prepare for your return in one of three ways:
Websites and packaged software for tax preparation have grown in popularity. Some, like FreeTaxUSA for the self-employed or TaxSlayer for difficult cases, are targeted at particular markets. Other well-known names in the industry include TaxAct, H&R Block, and TurboTax.
Basic to extensive services are offered, and prices start at nothing and increase in line with that. For instance, H&R Block provides a fundamental function at no cost. Also available are deluxe for $54.99, the premium for $74.99, and self-employed for $114.99. There is an extra charge of $44.99 for each state. Additionally, TurboTax offers a free product. The most expensive version costs $119 plus a per-state fee.
Gather your documents and enter all of your information once you've decided on one. You might be able to finish this in under an hour, depending on your situation. This is a fantastic choice for folks who want to do their own taxes and save money or for more basic scenarios.
The IRS and tax preparation businesses that offer their services for free have partnered to create the Free File program. There are two methods for using it:
For taxpayers with an adjusted gross income of $73,000 or less, the traditional IRS Free File program offers free online tax preparation and filing alternatives on IRS partner websites.
Federal tax forms that may be filled out and sent electronically are called Free File Fillable Forms. This choice is open to taxpayers with incomes over $73,000, but it does require that you have some tax preparation experience.
The most expensive choice is usually to hire a tax preparer, but if they can also assist with tax planning, it can be worth it. This could be a certified public accountant (CPA), enrolled agent (EA), or another expert.
Even though this method requires the least amount of intervention from you, you still need to examine your returns to make sure everything has been appropriately included. You can provide them with your documents via chat, phone, video, or in-person meetings, and they will take care of the rest.
There are a lot of small, independent accounting firms and professionals available who are willing to assist. For 1040 itemized and 1040 non-itemized, the typical firm charges an average fee of $323 and $220, respectively.
Although it is the norm these days, filing taxes electronically is not necessary. You can still complete the paper forms according to the IRS's instructions and mail them in.
When might doing that make sense? Probably never if you're not very skilled at math. The likelihood that one of the numerous calculations used to create the result will contain a mistake is too high.
The amount of your taxable income is decreased via deductions. Either use the standard deduction or individually itemize your deductions.
The majority of taxpayers will take advantage of the $25,900 standard deduction for married couples, $12,950 for single filers and married people filing separately, and $19,400 for people filing as head of household for the 2022 tax year.
Some taxpayers, such as married individuals filing separately whose spouse itemizes taxes, are prohibited from using the standard deduction.
Take the standard deduction if the sum of your itemized deductions is less than it would be otherwise. Itemize if the total is greater than the standard deduction. You can deduct costs specifically related to your business or rental property in addition to itemized deductions.
Credits like the child and dependent care credit, the child tax credit, or the foreign tax credit may also be available to you. Credits are more beneficial than deductions because they lower your tax burden by the same amount.
If you use a website or tax-preparation software, it will guide you through the process step-by-step and ask you a variety of questions about your income, marital status, and dependents in order to identify the deductions and credits that are appropriate for your circumstances. Some companies charge an additional fee to access live tax advisors online.
If you hire a tax expert, they will deliver your finished return to you for approval before filing. Check your calculations several times to ensure you haven't missed any deductions or credits if you prepared your own forms on paper.
Whether you do it yourself or with the help of a professional, after you're done you'll know if you owe the IRS money or if you overpaid and are entitled to a refund.
The actual filing of your tax return is the last stage in the process.
The vast majority of individual tax returns are filed electronically, according to the IRS. Additionally, if you're entitled to one, that is the quickest way to receive it. If you file electronically, you'll typically receive your return in a few weeks.
If you choose to use paper copies, be sure to include all necessary supplemental paperwork and supporting documentation. Refunds must be signed and dated. Also, make sure the envelope is postmarked before April 18 if you want to file.
