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Preparing for Tax Season and What to Do with Your Refund

If you are a taxpayer, it is important to know that you should take your time when preparing for tax season. This will help in avoiding potentially costly mistakes and to ensure that you get your refund in a timely manner. The time to prepare for tax season is now. In this guide, we will outline tips that will help you properly prepare for the season. Additionally, we will provide information on what to do with your refund once you receive it. Continue reading to learn more.

tax preparation

Preparation Tips

The following outlines a list of tips that are highly beneficial in total preparation for tax season:

  1. Go to IRS.gov – The website, IRS.gov is available 24 hours a day, 7 days a week. If you need help figuring out how to get ready for tax season or have any questions or just want to look up information. Millions of people in the United States utilize this website to learn more about tax solutions and the website even allows you to file your taxes and pay any due taxes.
  2. Gather up All Records – It is important to keep up on all associated records because it helps make a tax return much easier to complete. Having good, solid records and being organized can help in finding deductions and credits that you may qualify for.
  3. Online Tools – When getting your taxes together, there are many online tools that you can use to help you gather up everything that you need, and teach you how to complete your taxes without the assistance of a professional.
  4. Highly Reputable Preparer – There are many tax preparers out there today. Not all of them have the same level of experience, though. When preparing for your taxes, you should use the IRS Directory of Federal Tax Return Preparers in order to find a highly reputable preparer. This database will help you find a preparer in or around your area that have professional credentials and participate in the IRS program for filing season.
  5. Electronic Filing – In today’s world, the IRS encourages its citizens to file tax returns on an electronic basis. It is recommended that you choose direct deposit for any refunds that are due to you.
  6. Direct Deposit – When you file your taxes, you should choose to have your refund direct deposited. This is easier, faster, and a reliable and a highly secure way to actually receive a refund. You may elect to have the money deposited up to three accounts. According to the IRS, it is much more likely to experience issues with a tax refund check than a direct deposit. It could be lost, stolen, uncashed, or even misdirected.
  7. Report Unemployment – If you drew unemployment during the year, you should make certain that you report that income when you file your taxes.
  8. Report ALL Income – You are legally required to report all income from every source – including gig economy jobs, 1099s, and W-2, and Wage Statements and Tax Statements.
  9. Accuracy is Key – When you submit your tax return, you should make sure that your bookkeeper and you review the return for accuracy. If your return is accurate, you can avoid delays in it being delayed. Check your name, Social Security numbers, account numbers, routing numbers, and other information.
  10. Review Publication 17 – You should review this publication because it gives you the rules for filing a return to the federal government. There is a new format that helps to make the publication easy to understand and download.

Need Someone to Help You Prepare Your Tax Return?

If you need to have help preparing your tax return, you will quickly find that there many different types of preparers out there. You may choose from certified public accountants, enrolled agents, several types of attorneys, and others who are not professionally credential or other type of credential. Your information is highly sensitive. It will include information about your marital status, your kids, all of your Social Security numbers, and other financial information. It is best to opt for a reputable tax preparer.

How to Pick a Reputable Tax Preparer

There are many steps that you may take that will allow you to choose a tax preparer that is reputable. The following outlines these steps:

  1. First, you should elect to not work with preparers that state that they can get you larger refunds than other preparers are able to get you.
  2. You should never work with a preparer that bases fees on the percentage on the refund you are entitled to or who provide the offer to deposit parts of your money from your refund into their accounts.
  3. Make sure that the preparer that you use includes their unique PTIN on the business transactions that they engage in.
  4. Make sure that the tax preparer provides you with a copy of your return when it is finished.
  5. Tax preparers that are on top of their game will ask to see receipts, records, and other types of documents.
  6. You should never sign a tax form that is blank.
  7. Ask the Better Business Bureau (BBB) about the tax preparer that you want to use to learn more about them.
  8. You should always review the credentials.

What to Do with Your Tax Return?

Most people just spend their tax return when they receive it. In fact, most people have done this at least once. It is a perfectly acceptable option; however, it is best to try to avoid spending the return and pay yourself. On average, most taxpayers receive high and sizeable refunds. The average is $2,800 and higher. In a recent survey, many people were asked what they did with the money that they received. The following outlines the findings:

  • 31% Invested
  • 27% Purchased Food
  • 28% Paid Down Debts
  • 6% Spent it on Shopping Sprees or Going on Vacation

This means that six people out of every ten who receive a refund will use it to try to improve their finances. Honestly, we should all strive to do this. The following outlines tips on how you can use your tax refund in a productive manner:

  1. When you get your tax return back, you should place a priority on paying off your high interest debts. If any of your debts carry interest of 16% or more, that is considered to be high.
  2. You should take your tax return and create an emergency fund. This can be used to make up for lost time at work, unexpected mechanical issues with your vehicle, and even household emergencies. It is ideal to have an emergency fund that includes about the same amount of money that you would make within 6 months at your job.
  3. If you have a mortgage, you can use your tax return in order to make an additional payment or add to the principal of the account.
  4. You can place the refund in a high yield savings account so that your money makes money, over time.
  5. If you have an annual retirement plan, you can use the refund that you receive in order to max out your plan contribution. You may also put the money in some other type of investment account. If either account is tax-advantaged, you will have the ability to make that money grow even larger, over time.
  6. In addition to the above, you can invest your tax refund into an indirect investment. These include business endeavors, making purchases that you may sell for a profit.
  7. The earnings that you accumulate throughout the year are held back by a certain percentage. This is in case you owe taxes in the future. If you get a refund yearly, you should have your W-4 withholding this will allow you to have larger paychecks throughout the year.
  8. Invest in yourself. Do things like buy a new home, sign up for a bank account, use some of it to build your credit through a secured credit type of credit product.

How Long Should You Keep Your IRS and Associated Records?

You should keep your tax returns and all of your associated tax records for a period of up to three years. If you are self-employed or have served as a guardian or a Rep Payee to another individual, you should keep the returns and associated for up to seven years. If you file a claim from a loss such as a bad debt deduction or any worthless securities. If you have any other questions about how long to keep your tax returns and associated records, you should contact your tax preparer.

Conclusion

If you need assistance with your tax returns, you may contact one of our financial associated here at Somerville Bank. In addition to standard financial advice, we offer savings accounts, checking accounts, and other types of financial products that can help you maximize your tax return. For more information, you may visit one of our locations at: https://somervillebank.net/locations/