In 2020 alone, the IRS collected nearly $3.5 trillion just in gross taxes. And it’s that time of year again when you prepare to collect your tax documents and file your taxes.
Completing your taxes properly each year is one of the keys to keeping your financial situation healthy. But for many Americans, filing taxes is one of the most confusing processes of the year.
They don’t know where to begin, what documents to collect, and what to do with them once collected.
Luckily, we’ve created the following guide. It will explain 6 steps to prepare you for tax season, including how to plan ahead and secure the best personal loans possible.
1. Gather Necessary Documents
Your taxes require quite a bit of paperwork. Get organized sooner rather than later by gathering all of your important documents now. It’s easy to create a folder or a basket to store documents until you’re ready to use them.
Many documents, like 1099s or W-2s, are now available electronically. Create a folder on your computer to store these documents.
Common documents that you should store include:
- W-2s from employers
- 1099s from anyone who paid you for a service or contract
- Documents showing medical, educational, childcare expenses
- Statements about investments or mortgage interest payments
- Receipts that document deductible expenses
- Receipts that show charitable donations
For 2021 tax returns, you may be able to claim up to $300 in donations to qualifying charities. The IRS has a database you can search to see if your donation is eligible.
2. Record Information About Dependents
Do you include any dependents on your tax returns? If so, you’ll need their names and Social Security numbers. If someone else can or may claim one of your dependents, you’ll need to know that, too.
For example, if you’re divorced, you should work out which parent will claim a child for the 2021 year. Both of you can’t claim the same child for the same tax year.
3. Double-Check Personal Info
It’s up to employers to send you your W-2 or other documents by the last day of January each year. While some employers will be timely, others will wait until the last minute.
And if they don’t have your correct information, it will even further delay the process. Filing your tax return as soon as possible is usually the best way to get a refund sooner and avoid taxpayer theft. The longer it takes to file, the more at risk you are.
Double-check your personal info with your employer and any other businesses that will send you tax documents as soon as possible. Even reviewing months before the January 31 deadline will make your life easier.
And once people are reminded that they owe you tax documents, it may light the fire under them that they need to get those finalized and sent to you soon.
4. Plan Ahead to Pay Taxes
The IRS reports that $114 billion in taxes were delinquent for the fiscal year 2020. The best way to protect yourself from becoming delinquent is to start planning your taxes ahead. Here are a few tips:
Start a Savings Account
Take time to learn about the differential brackets.There are seven federal tax brackets for the 2021 tax year: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. If you are responsible for your own taxes, determine which tax bracket you fall into and plan ahead. You’ll want to start a savings account to pay for your taxes. Break away money for taxes each month as if an employer were taking them out for you. This will eliminate that panic moment when you learn you owe thousands of dollars and cannot pay on time. Paying taxes is hard enough without the added stress of penalty fees, interest rates – and in the worst case – liens and asset seizures.
If you want to reduce your taxable income, you can make contributions and charitable donations. Spend some time thinking about where you want to donate and how much you want to give.
Consult with a Professional
If you’re unsure about where to begin with your taxes, you’ll likely benefit from consulting with a professional. This is especially true if you have multiple sources of income – an account will help you keep track of payments and proper filing procedures for each position.
5. Plan Ahead for Personal Loans
If you have not been properly saving for tax season and you want to ensure that you have proper funds to pay your taxes when they are due, you may want to plan out taking a loan so you can pay taxes in a timely manner and avoiding those penalties.
In other cases, you may be receiving a tax refund. If you’re already anticipating a refund from the IRS, you can take out short-term tax refund advance loans. You will be able to take out tax refund loans from $200 to $4000, and you’ll want to research the best place to get a loan.
To be eligible for a tax refund loan, you will have to meet a few requirements. You must have your taxes prepared by the company offering the loan, and you may pay a tax preparation fee.
But a small fee to one of the best personal loan lenders can definitely be worth an advance that can be worth thousands.
6. Review Your ITIN
You may use an Individual Taxpayer Identification Number to file your taxes. If you haven’t used it at least once in the past three years, though, it expired at the end of the year. This means that if haven’t used it in your 2018, 2019, 2020, you won’t be able to use it for your 2021 returns.
Also, keep in mind if your ITIN has the following middle digits. and was assigned prior to 2013, it has expired.
If you haven’t taken proper action to renew any ITIN with these numbers as middle digits, they’ve also expired. In many cases, you’ll be able to send in your ITIN renewal form when you sent in your tax returns.
Getting the Best Personal Loans Possible
With our 6 step guide, you can prepare yourself for completing your 2021 and preparing for 2022 taxes. From finding the best personal loans to organizing your documents, make sure to set aside time in the next few months to get all the resources you need.
Whether you’re looking to get the best personal loans for bad credit or need help setting financial goals, Guarantee Loan Texas can help. Visit our other blog posts to learn more.
Give us a call today—we would be glad to help you, or you can apply online at one of our 10 Texas locations. Follow these tips when you apply and your personal information is safe with us!