The average American taxpayer has quite a few options when it comes to preparing their tax return. Those with a modest income, employees, tenants, and low investment owners are better off filing their taxes online through tax preparation websites. The online services are quick, inexpensive, and offer a convenient solution for your basic tax needs. Certain brick and mortar tax preparing services have now launched their websites for such clients.
However, not all tax situations are similar. If you own rental properties, run a business, or have other investments, preparing a tax return is a lot different and, in many cases, will require the services of an expert. A professional tax preparer will ensure that your deductions are maximized and that you end up with a significantly lesser tax burden. However, even an expert requires tidy bookkeeping and specific items to help you file a return to the best of their ability.
Identification
You are required to have a photo identification that would appear on top of the 1040 form. Any type of identification document is sufficient to go through this step. A social security card is the most crucial identification document when preparing a tax return. If you have a spouse or family planning to file jointly, everyone’s social security cards are required. Married individuals need their spouse’s signature on their tax returns before they are submitted to the IRS.
For US citizens, a social security number works just fine. However, in some cases, other nationality holders are required to file income tax returns. They need to acquire an ITIN (individual taxpayer identification number) and bring it to the tax preparer’s office to proceed.
Proof of Income
The purpose of income tax is not only to inquire about what you earn at your place of employment but also from other sources, such as investments, businesses, the sale of the property, etc. Not all of your income gets taxed at the same rate, and some won’t be taxed. However, you have to disclose everything. Earned income will be taxed separately from unearned income.
You must have an official income statement from each of your income sources. Your employer reports your earned income as a W-2, while self-employed individuals report it as a 1099-MISC. You must bring all of these income documents to the expert’s office to prepare your tax return. Below are some types of incomes that you should report to the IRS.
- Earned income
- Income from business
- Rental income
- Social security benefits
- Royalties
- Gambling earnings
- Rental income
- Income earned as dividends on stock
- Alimony
Once you have acquired everything that is needed, you can proceed with the deductions and exemptions.
Proof of Expenses
The most important reason for hiring a tax expert is increasing your deductions in compliance with the IRS rules and regulations. All taxpayers are permitted for a standardized deduction. However, if you want to reduce the tax burden, a lot can be achieved by providing substantial documentation of your expenses when preparing your return.
This is why it is essential for you always to keep receipts as they are the sole proof of your expenses. Businesses are often liable to the most amount of deductions in the form of business expenses. Though, there are deductions like medical bills, childcare expenses, mortgage interest, and charitable contributions that can be included in personal expenses.
Proof of Disaster, Theft, and Other Unexpected Losses
If someone has encountered an unexpected situation and suffered heavy losses, you must not think that the IRS is going to get you. Several provisions in the tax code are designed to help individuals and businesses who have incurred substantial damages.
To claim a loss or theft, you will have to provide proof of ownership and how it was taken away from you. If you have requested a part of the damages with your insurance, that must be clearly stated. In most cases, victims of natural disasters are exempt from taxes by providing proof of lost property and rebuilding expenses.
Conclusion
Individuals who can produce all of the items mentioned above do not need to worry about preparing a tax return. You need to find a good tax preparer and get this taken care of before the due date with substantial deductions.
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