Tax season is underway, and for many, it’s a stressful time of year. A 2024 survey from Nextdoor found 64% of Americans experience stress during tax season. Meanwhile, CNBC reports that one in four Gen Zers say they’ll need a therapist to deal with their tax-related stress, and 54% said filing taxes has driven them to tears in the past. Whether we like it or not, filing income taxes is a routine part of life. So what can you do to prepare and mitigate the stress?
1. Take note of filing deadlines
This year, the IRS started accepting 2024 income tax returns on January 27. The IRS estimates more than 140 million individual tax returns will be filed ahead of the deadline of Tuesday, April 15. If you believe you’ll be unable to file by April 15, you can file an extension. Although you can file after the tax deadline without filing an extension, you’ll likely be penalized.
2. Organize your documents
With that in mind, now is a good time to gather all of your documents. The first form you’ll need to have is your W-2, or Wage and Tax Statement. Employers had until January 31 to send it to you. If you’re a business owner with independent contractors, the same deadline applies for sending out 1099s. There are various 1099 forms for different situations ranging from contractual work to royalties and rentals and even retirees. If you’re unsure, the IRS has specific instructions on filing a 1099 form.
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Next, you’ll want Social Security numbers, birthdates and income for yourself, your spouse if you’re planning on filing jointly and any dependents you plan to claim. If you have a PIN from the IRS, you’ll also want to have that on hand.
If you’re planning to receive a refund by direct deposit, you’ll need to have your bank’s routing number and your account number. This can also come in handy for those who end up owing the IRS, as you can pay your tax bill directly from your account.
For those planning to claim any deductions, you’ll need to have documentation for each. Some common deductions include contributions to retirement accounts; education expenses, such as tuition, fees and interest on student loans; medical bills; property taxes and mortgage interest; and charitable donations.
Similarly, you’ll also want to have a record of any tax credits. Tax credits provide dollar-to-dollar cuts in any tax you owe. Some examples of tax credits you can claim include the child and dependent care credit, the premium tax credit, retirement savings contribution credits, and credits for older people and people who are disabled.
If you want to make sure you’re extra prepared, or are planning to file on your own, it might be wise to locate last year’s return. Having your state and federal returns (if applicable) can serve as a helpful guide, allowing you to see what you filed last year and the specific documents you used. If you’re using tax software to file your returns yourself, a lot of providers will allow you to upload your returns from the year before to save you from reentering information.
3. Know your options for filing your returns
When it comes to filing your taxes, you have a few different options. If you’re planning to file your own tax returns, there are a number of different online software programs that you can use, such as TurboTax, Jackson Hewitt and H&R Block. For those with an annual adjusted gross income of $79,000 or less, the IRS offers its Free File Program.
This year, the IRS also expanded its Direct File program, which is available in 25 states. This option allows taxpayers to file their returns for free. The platform has a couple of new features, including added support for various tax scenarios, such as claiming the child tax credit and the premium tax credit, which applies to people who have purchased medical coverage through the Health Insurance Marketplace. The Direct File program also allows you to claim deductions for health savings accounts (HSAs), student loan interest and expenses for educators.
If you have a simple financial situation, you can also fill out IRS Form 1040. The form asks who you are, calculates your taxable income and tax liability, and determines whether you’ve already paid some or all of your tax bill. You can file the form electronically or through the mail, which is a less secure option.
If you’re uncomfortable filing your returns yourself, you can hire a professional. This option works best for those who have complex financial situations, those who may feel intimidated or uncertain about filing, and those who just want to save time. If you have a side hustle or own your own business, it may be wise to hire a tax professional to avoid being audited.
What’s new this tax-filing season?
In addition to the Direct File program, the IRS says more help will be available for taxpayers this season. The agency is planning to expand in-person help by increasing hours at Taxpayer Assistance Centers nationwide and improving its phone helpline service. As for filing online, the IRS says it has added functionality to individual accounts, including scam alerts, virtual assistants, and ‘save and draft’ capabilities for forms on mobile devices, allowing people to start a form, save it and return to it later.
The IRS wants to increase its rural outreach program by 20%, which will ultimately increase the number of returns that are prepared. It also wants to increase awareness of the earned income tax credit. The agency says nearly one in five eligible taxpayers don’t claim it because they’re unaware of the credit or that they qualify for it.
When should I file?
Although you have until April 15 to file your federal returns, the sooner you file, the better. If you file early, you can get your refund faster. If you owe the IRS, filing early will give you time to prepare your payments, as the bill isn’t due until the filing deadline. Filing earlier can also help you obtain important financial information for major life changes, such as buying a home or enrolling in college. This information is needed to apply for financial aid or to get a mortgage.
Filing early can also help protect you from tax return identity theft. If you wait to file, it becomes easier for someone to file a fraudulent claim using your information. According to a report from the Treasury Inspector General for Tax Administration, the IRS says it identified more than 32,000 tax returns with around $272.7 million claimed in fraudulent refunds. Although the IRS says it prevented 96.3% of those refunds from being distributed, tax theft can still happen. Therefore, the sooner you file, the less likely you are to fall victim.
Tax season can be a complicated time. There’s a lot to keep track of and the information can be overwhelming for those who are new to filing, or who have complicated financial situations. However, knowing how to prepare, the important deadlines and your options for filing can help ease the stress. If you have questions, be sure to consult a financial adviser or tax preparer.
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