What Is Tax Preparation?
Tax preparation involves the procedures of preparing tax returns, usually income tax returns that will be sent to the Internal Revenue Services (IRS). Tax preparation in most cases is prepared by a person other than the taxpayer, and it is primarily for compensation.
The tax preparation software or online services for the tax preparation may be used for preparing the tax returns. Besides, authorized professionals like certified public accountants and attorneys or enrolled agents may be hired to prepare the tax returns because of the complexities of the income tax laws.
What to Know About Tax Preparation
When to File Tax Return
The filing of taxes takes place after the beginning of the calendar year for which deductions, expenses, or incomes are claimed. The tax return for a particular tax year will be accepted and processed by the IRS on January 30.
Means of Filing
a. Paper Return: Note that the IRS does not mail out tax packages any longer, but filers can still file a tax return on paper via the mail, although it is an outdated form of tax preparation.
b. Electronic Filing: Tax return is best submitted electronically as there are many software packages and service providers that can be used.
c. Late Filing: Failure to submit a tax return on time will attract a failure-to-file penalty and interest. You can request for an extension by April 15 to avoid penalties.
Information Needed for Tax Returns
Below is the information that must be reported in a tax return:
1. Income Declaration
A tax return must contain the amount of income earned in a particular year. An employer paying your salary must send a W-2 form to you every year to report your annual income and the amount of tax withheld.
2. Previous Tax Payments
If you have withholding taxes from previous earnings, you can enter them to reduce the amount of your tax liability.
3. Deductions and Credits
You can take advantage of tax credits to reduce the amount of tax payable, although there are criteria for eligibility. Such deductions and credits must be disclosed in a tax return.
4. Interest and Dividend Income
Income received from any investment such as interest from a savings account and dividends received from owned stocks must be reported in the tax return.