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E-file, paper or professional? How to do your taxes this year

You have to file your taxes every year, but which way is best for you? First, it’s important to understand what each method entails:

E-file: going paperless

According to the IRS, about 126 million tax returns were filed electronically for 2017. There are many benefits to electronic filing. E-filing can get you a faster refund, and e-filing apps can help ensure accuracy by automatically checking for errors or missing information.2

Tax preparers: going pro

With a complex federal tax code more than 74,000 pages long, it’s no wonder over half of U.S. taxpayers hire a professional to help them. If you go this route, check to ensure your preparer has an IRS Preparer Tax Identification Number (PTIN) and find out their service fees up front.3 Also, keep in mind that if your tax preparer files 10 or more returns in a year, the IRS requires that your tax return be filed electronically.3

Paper returns: going traditional

Filing a paper return, it can take six to eight weeks to receive your return, but in some instances you must submit by mail:

  • Living in a community property state and you are married, but filing a separate return.
  • Claiming a dependent who has already been claimed by someone else.
  • Submitting a tax form that cannot be e-filed (such as a multiple support agreement).
  • Filing before or after the e-file window.

Keeping documents organized

Whether you file electronically or with paper, don’t wait until the end of the year to keep track of your tax information. As the year progresses, file your tax information into three folders:

  • Income (salary, dividends, interest, earnings, distributions, 1099s and W-2s).
  • Expenses (charitable donations, mortgage statements, medical bills, childcare costs, utility bills and non-reimbursable employment-related costs).
  • Investments (statements, purchases, sales, gains, losses, interest, dividends, cost bases, annual retirement plan contributions, 1099s and K-1 forms).4

Then you’ll be able to retrieve it easily, and preparing to file won’t be such a nightmare. And once you’re ready to file – electronically or on paper – always remember to sign your return.

Once tax season rolls around, you’ll want to keep this checklist in mind to stay prepared:

Gather personal information

Make sure you have basic information, including Social Security numbers and employer information, for each person on your return. Create a folder on your personal computer with this type of information so you always know where to find it.

Collect income data

Gathering tax forms for you and your spouse is a good first step, but remember that you may have income that is not included on your W-2. Don’t forget to claim any income you’ve received throughout the year, including:

  • Money from investments
  • Alimony
  • Rental properties
  • Home businesses
  • Lottery or casino winnings

Make a note of itemized deductions and credits

Tax deductions decrease your total amount of taxable income. So, it’s important to keep track of everything you can deduct. A few standard deductions include:

  • Child care costs
  • Education costs
  • Mortgage interest payments
  • Charitable donations

Most deductions require receipts and other documentation, so check with your tax advisor to make sure you have the necessary paperwork.

Document taxes you’ve already paid

Most employers take federal, state and other taxes out of each paycheck. These deductions will be detailed on your W-2 form. If you’re a contracted employee or own a business, you’ll have to keep tax records yourself.

Note life changes in the past year

Significant life events can affect your tax return. You may be eligible to claim additional deductions if you had an IRS-recognized life event, such as:

  • Got married
  • Divorced
  • Had a baby
  • Moved to a new state

Learn about upcoming tax changes

The federal tax code changes all the time. Make sure you talk to your tax advisor about how these changes may affect you each year. Upcoming tax law proposals may have an effect on higher tax brackets. Be sure to read up on these bills, especially if your family income exceeds $250,000 per year.

Sources:

[1] http://www.efile.com/efile-tax-return-direct-deposit-statistics/

[2] https://www.wellsfargo.com/tax-center/electronic-filing/

[3] https://www.irs.gov/uac/Newsroom/IRS-Urges-Taxpayers-to-Choose-a-Tax-Preparer-Wisely--for-the-Filing-Season-Ahead

[4] www.fool.com/personal-finance/taxes/get-organized-for-the-irs.aspx

Federal income tax laws are complex and subject to change. Neither the company nor its representatives give legal, tax or financial advice. You should consult an attorney or competent tax professional for answers to specific tax questions as they apply to your situation.