Home Tax Preparation The Best Suggestions and Tips for Tax Preparation

The Best Suggestions and Tips for Tax Preparation

The Best Suggestions and Tips for Tax Preparation

Tax preparation can be a daunting task, but it is necessary to ensure that you comply with tax laws, report your income accurately, and maximize your refunds. As tax laws change, tax preparation also evolves, which is important to keep in mind. In this article, we will provide the best suggestions and tips for tax preparation, including updated information and resources from the government.

Understanding Tax Brackets and Marginal Tax Rates

One of the most important aspects of tax preparation is understanding the tax brackets and marginal tax rates. Tax brackets refer to ranges of income that the government taxes at different rates. Marginal tax rates refer to the tax rate applied to each additional dollar of income within a certain tax bracket.

In the United States, the Internal Revenue Service (IRS) has the following seven tax brackets for the 2021 tax year:

– 10% for individuals earning up to $9,950
– 12% for individuals earning between $9,951 and $40,525
– 22% for individuals earning between $40,526 and $86,375
– 24% for individuals earning between $86,376 and $164,925
– 32% for individuals earning between $164,926 and $209,425
– 35% for individuals earning between $209,426 and $523,600
– 37% for individuals earning above $523,600

Knowing your tax bracket helps to determine how much you owe to the government, which can also help you identify how to minimize your tax liability.

Maximizing Tax Deductions and Credits

Tax deductions and credits are significant in tax preparation to reduce your tax bill. Here are a few notable deductions and credits you can consider:

Standard Deduction: This is a flat amount that you can claim instead of itemizing your deductions. For the 2021 tax year, the standard deduction is $12,550 for individuals filing as single and $25,100 for married couples filing jointly.

Charitable Donations: Donations to qualified charities are tax-deductible if you itemize your deductions. The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides a new $300 deduction for charitable donations made in cash to qualified organizations for taxpayers who don’t itemize their deductions.

Earned Income Tax Credit (EITC): This is a refundable tax credit for low and moderate-income taxpayers that can be worth up to $6,728 for the 2021 tax year.

Child Tax Credit: This is a tax credit for parents with children that are up to $2,000 per child. The American Rescue Plan expanded the credit to up to $3,000 for children aged 6 to 17 and up to $3,600 for children under the age of 6 for the 2021 tax year.

Retirement Contributions: Contributions made to an individual retirement account (IRA) or 401(k) plan can be deducted from your taxable income. Additionally, you can also make catch-up contributions if you are above 50 years old.

Reviewing Your Income and Expenses

Another critical aspect of tax preparation is reviewing your income and expenses carefully. Income refers to money from various sources, such as wages, tips, interest, and dividends. Expenses refer to all costs associated with earning that income.

If you receive a W-2 form from your employer, you should review it to ensure that the information contained within is correct before filing your taxes. Self-employed individuals will receive a 1099 form that details their earnings.

Deductible expenses include business costs, home office expenses, and other work-related expenses. You should also keep track of out-of-pocket healthcare costs, such as prescription drugs, doctor visits, and treatments, as these can be deducted from your taxes.

Knowing the Tax Deadlines and Extensions

Filing your taxes by the deadline is important to avoid penalties and late fees. In the United States, the tax deadline for the 2021 tax year is May 17, 2021. However, state tax deadlines may vary.

If you require an extension, you can apply for one through Form 4868, which can grant you until October 15th to file your taxes. If you don’t pay the amount you owe by the tax deadline, you may face a penalty, even if you’ve received an extension.

Utilizing Tax Preparation Software and Services

Many companies offer tax preparation software and services that can help you prepare your taxes in an organized and efficient manner. These services can also provide guidance on various tax deductions and credits. These tools are particularly helpful for those who are self-employed, have multiple income streams, or are unfamiliar with the tax code.

Some of the most popular tax preparation software and services include TurboTax, H&R Block, and TaxAct. Additionally, you can also enlist the services of certified public accountants (CPAs) or other tax professionals, who can provide personalized guidance and assistance.

Staying Up-to-Date on Tax Law Changes

Tax laws and regulations change every year, so it’s necessary to stay up-to-date with new developments and requirements. In the United States, the IRS website provides up-to-date information on tax law changes and updates.

For example, the CARES Act provides numerous tax breaks and enhancements that can alleviate the financial burden caused by the pandemic. This includes relief payments, expanded charitable deductions, and modifications to various tax credits.

Conclusion

Tax preparation can be a complex and time-consuming task, but it’s essential for compliance with tax laws and optimizing your tax returns. By keeping up-to-date with tax laws, making use of tax deductions and credits, and utilizing tax preparation software and services, you can make the tax preparation process more manageable and maximize your refunds. Remember to also review your income and expenses carefully and stay up-to-date with tax deadlines and extensions.


Tax preparation can sometimes be a complicated process. Although some people will file tax returns on their own, many people choose to get help from a tax professional or from professional tax preparation software. Whether choosing to prepare taxes with or without the help of a professional, it is important to be aware of tax preparation basics, suggestions, and tips. Staying organized is one of the best ways to ensure that tax returns are filed properly and timely. There are several personal records that will be necessary for filing tax returns:

Valid form of identification

Social security numbers and birth dates for the filer, the spouse, and any dependents

Earning statements, such as a W2 form, 1099 form, unemployment form, or social security benefits

Investment records

Bank account information

Copy of tax returns filed during the previous year

Receipts for child care and educational expenses

Receipts and records for expenses that may be deductible, such as charitable donations, medical expenses, etc.

It is beneficial to keep detailed records of expenses throughout the year, so that tax preparation can be made easier when the time comes. Some individuals who are required to travel for their profession may be able to deduct travel expenses, such as hotels, airfare, and tolls. In this case, it will help to keep a detailed record these expenses including dates and the amount of mileage traveled. Often, medical expenses can be deductible, in which case the filer should keep all invoices from medical providers.

Organizing and updating these records ensures that the filer will receive the adequate amount of tax deduction. An important suggestion is to keep receipts for all purchases, even if they do not seem important at the time. This will help to keep an accurate record of purchases that may be considered deductions, and will help legitimize any claims that are questioned by the IRS. A tax payer will need this information whether using a preparer or professional tax preparation software.

It is also beneficial to keep a record of tax preparation fees, which may also be deductible. Another tip is to choose the simplest form. Most people will be eligible to fill out a 1040EZ, which is, in most cases, the easiest form to fill out. In order to qualify for this, the filer should earn under $100,000 per year, be filing with a spouse, and be under 65 years of age, among some other restrictions. If a person qualifies for this form, it will be beneficial to use it, because it will be less complicated and time consuming than others.

Some people choose to use the services of professional tax preparation software to make the process easier. There are also certain tips for choosing a tax preparation professional. It is important to choose wisely because, even if the returns were filed by a professional, it is usually the tax payer that will be responsible for errors. Be sure that:

The preparer signs and completes all sections of the IRS form for which he or she is responsible

All personal information, such as name, date of birth, social security number, etc. are correctly listed

Ensure that the preparer did not leave any of the necessary forms blank

A filer should also be aware of tax preparation fees. Tax professionals and professional tax preparation software will charge a variety of tax preparation fees. These sometimes depend on the complexity of a specific tax return. Fees may be based on the amount of forms that need to be filled out and can increase as the individual’s tax situation varies from year to year.

Some tax preparers will instead charge an hourly fee based on the amount of work that goes into each person’s returns. Tax payers should ask a preparation firm how much they will be charged up front since tax preparation fees vary greatly. They should also be aware of what exactly is included in the tax preparation fees.