How to Prepare Your Federal Income Tax Return
Tax Preparation Tips for Filing Your 1040 Return
If you understand how to prepare your federal income tax return, the process does not have to be so intimidating. Although you may run into some details that you’re unsure of, there is always a way to find the right answer.
Have you had issues with tax preparation in the past? If so, the following tips and information will be useful.
Gather the Appropriate Documents
Preparing a tax return is much less stressful when you are organized and have all the proper paperwork laid out in front of you. In general, this includes your income statements (W-2 and 1099 tax forms) as well as receipts that support any tax deductions or tax credits you plan to claim.
RELATED: Tax Form W-2 Instructions
Before you begin filing your 1040 tax form, make sure you have the following information ready:
- Proof of identification
- Filing status and residency status
- Social Security Numbers for you, your spouse, and any dependents (if applicable)
- Dates of birth for you, your spouse, and any dependents (if applicable)
- A copy of your past year tax return
- Statements of your wages (e.g., W-2, W-2G, 1099-R, etc.)
- Statements of interest or dividends from banks, brokerages, etc.
- Proof of any tax credits, tax deductions, or tax exclusions
- Your bank account number and routing number (for Direct Deposit of your tax refund)
As you probably know, the IRS has taken steps to streamline and simplify the income tax return process. The overhaul is part of the Tax Cuts and Jobs Act (TCJA), which was signed into law by President Trump on December 22, 2017. Therefore, you will need to be prepared to file the newly designed 1040 return.
The new Form 1040 consolidates the three older versions of the 1040 return (Forms 1040, 1040A, and 1040EZ) into one form. The 1040 form is now basically two half-pages. The first page is for your personal information (including name, Social Security Number, address, dependents, and signature). The second page is where you report your income, tax deductions, tax credits, and tax refund information.
Decide Which Filing Method Is Best for You
You typically have 3 tax filing options: paper filing, tax preparation software, or hiring a tax professional.
Even in today’s day and age of digital technology, many people still feel more secure preparing taxes with good old pen and paper. With paper filing, you are in charge of every detail from start to finish – but there is no immediate help available.
Tax preparation software is becoming more and more popular for many reasons. Most tax preparation programs will be able to answer any questions you may have. Additionally, much of the software is built to help you take advantage of as many tax deductions and tax credits as possible.
When you hire a professional to prepare your federal income tax return, you are generally cutting out all of the ‘guesswork.’ You can be confident that your return is accurate and that you are saving as much money as possible. The downside to this is that you will pass the control to the tax professional, and of course, you have to pay for this tax preparation service.
No matter what option you choose to prepare your taxes, one thing remains the same: you need to be organized and have the proper documents on hand.
Mail or E-file?
Those who are filing a paper tax return will need to mail it to the IRS upon completion. Make sure you send your 1040 return to the correct IRS address – see “Mailing Addresses for the IRS.”
On the other hand, if you are using tax preparation software or you’re filing through a tax professional, e-file is probably your best option. Tax returns that are submitted electronically are generally processed faster, which means a faster tax refund for you.
Take Your Time
If you are filing a paper return or using tax preparation software, you are responsible for moving from one line to the next in a calculated manner. A professional who has been preparing taxes for many years may be able to move along quickly without making a single mistake. But since you only file once a year, you will want to be much more cautious.
Tax preparation can be simple and stress-free if you make an effort to understand the process and your options. Avoid common tax return mistakes by taking the time to double-check (and even triple-check) your work before submitting your 1040 return to the IRS.