How to Prepare to Do Your Taxes

US News

If your 2013 life has been stuffed into an old shoebox, get it out and start sorting those receipts into categories. Make sure you have received W-2 forms from employers, 1099s from companies for which you did contract work and documents from banks and investment firms on interest and dividend income and mortgage interest paid.

Once you've collected all of your documents, make sure they are accurate. Companies, even big companies, make mistakes on W-2 forms and 1099s all the time. If you find an error, contact the company and ask for a corrected document.

While you won't send your receipts, 1099s and other documents to the IRS, make sure you have documentation of all your income and expenses if the IRS comes calling and wants to audit your return.

[Read: 5 Reasons to File Your Taxes Early.]

"If you don't have the paperwork when you file your return, don't claim it," says Kelly Phillips Erb, a tax attorney in southeastern Pennsylvania. She also notes that taxpayers must claim all income on their returns, not just income for which they received a 1099 or other statement.

Pull out your 2012 return, too, to see which deductions you took last year.

Once you've pulled together your documents, you're ready to make the next choice: How will you do your return?

Options include using an accountant or tax preparer, buying tax preparation software, getting free, in-person help if you qualify or doing the return yourself online or on paper.

About 70 percent of U.S. taxpayers are eligible to file tax returns free using online services provided by the Free File Alliance, a public-private partnership encompassing 14 commercial tax-software companies and the IRS.

Anyone with an adjusted gross income of $58,000 or less can use Free File. Those with higher incomes can use online fillable forms, the digital equivalent of filing on paper.

Some of the companies charge extra for state returns or enhanced services, and not all are available to taxpayers in all states. The easiest way to find the companies that fit your situation in your state is to use the Free File Wizard tool on the IRS website.

Taxpayers can use the service any time. Free File has already started accepting returns and will transmit them to the IRS starting Jan. 31.

"It can be 11:00 at night in your fuzzy slippers," says Tim Hugo, executive director of the Free File Alliance. "What Free File tries to do is get you in the digital door."

If all your income was from wages, you don't own a home, don't have dependents and otherwise have a simple financial life, more than likely you can do your own tax return with no trouble. Those with more complicated finances who are comfortable with numbers and documents might do fine with tax-filing programs, either using Free File or buying software themselves.

But if you're self-employed, have significant investment income, lost a home to foreclosure, have children in college, major medical expenses or other financial complications, you might want to at least consult an accountant.

"Pay for advice - don't pay for putting numbers in boxes," advises Jeff Schnepper, author of "How to Pay Zero Taxes." He says even taxpayers who are comfortable doing their own returns consult an accountant every three to five years to stay up to date with tax-reduction strategies.

[Read: 7 Things Tax Preparers Wish We Would Do.]

Having your tax return professionally prepared costs $200 to $500 for most individuals, Phillips Erb says. And that's deductible. "Self-employed people feel like they can't afford to get a tax preparer," she adds. "Those are the people who most need it."

If you want to consult with an accountant, either for advice or for help preparing your return, now is the time to do it, before they get too busy. "You don't want to go looking for someone who is competent at the last minute because those people are booked," Phillips Erb says.

Taxpayers 60 or older can get free, in-person help from volunteers through the Tax Counseling for the Elderly program, and anyone who makes less than $52,000 a year is eligible for in-person help from the IRS Volunteer Income Tax Assistance program.

While you're getting documents ready for 2013 taxes, make sure you have all the systems in place you need for 2014 taxes. If you're planning for 2013 taxes, "you're a year too late," Schnepper says. "They should be getting ready now for filing their 2014 returns."

[See: Avoid These 10 Common Tax Mistakes.]

If you absolutely can't pull together everything you need by April 15, don't worry. Taxpayers can get an extension to file as late as Oct. 15 just by asking - although they need to estimate the amount due and send the money by April 15.

Plus, Phillips Erb says, you can always get a do-over. If you make a mistake, you can file an amended return.

Don't be afraid of April 15, she advises. "Just keep in mind that it's one day, and you can fix it if it's wrong," she says. "Anything can be fixed."



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