As tax season approaches, it can be a stressful time for many individuals and businesses alike. However, with the proper preparation, organization, and guidance, you can alleviate much of the anxiety associated with this time of year.
Collect Documents
Gather all the necessary documents before you file your taxes to make the process seamless. Generally, individuals will require a W-2 form supplied by their employer(s). However, you may file additional paperwork such as:
- 1099 forms for any freelance or contract work
- Investment income statements, Forms 1099-DIV and 1099-INT
- Mortgage interest statements (Form 1098)
- Receipts for deductible expenses, like medical expenses or charitable donations
- Records of any business income and expenses
- Social Security statements
Organize Your Financial Records
Organizing all of your documents systematically helps avoid potential errors. You may find it helpful to organize all of your documents by month and year so you can easily retrieve them. On average, you want to keep your tax records for at least 3 years from the date you filed your original term. You’ll want to keep records for 7 years if you filed a claim for a loss from worthless securities or bad debt deductions. Use folders, envelopes, or digital organizational tools to categorize and store your financial records. If you need assistance organizing your records, it is important to utilize Birmingham tax services from a trusted CPA.
Review Changes in Tax Law
With the help of tax services, your CPA will be able to review any changes that may affect you. This could include changes to tax brackets, deductions, credits, or reporting requirements. A CPA can help you maximize your tax savings and avoid potential penalties by having the latest information on the ever-changing tax laws and regulations.
Tax Deductions and Credits
One of the most critical components of tax preparation is maximizing your deductions and credits to lower your taxes. This includes mortgage and student loan interest deduction, charitable contributions, education expenses, child tax credit, and Earned Income Tax Credit (EITC). Keep detailed records of any deductible expenses to claim them on your tax return. Trusted tax services in Birmingham can assist in maximizing deductions.
Review Your Tax Withholding
If you’re an employee, ensure your tax withholding aligns with your tax liability. You can use the IRS withholding calculator to determine if you need to adjust your withholding allowances to help prevent overpaying or underpaying taxes throughout the year.
Plan for Retirement Contributions
Contributions to traditional IRAs, Roth IRAs, or employer-sponsored retirement plans like 401(k) or 403(b) may be tax-deductible or grow tax-deferred, reducing your taxable income and potential tax liability. The amount of contributions allowed changes yearly with catch-up contributions available to those over 50.
The Best Tax Services in Birmingham, AL
Don’t let tax season scare you. Sovereign CPA is Birmingham’s leading CPA firm, offering comprehensive tax services for individuals and businesses. Through the work of our experienced professionals, we maximize their savings and earnings. Contact us online to learn more about our Birmingham tax services!
