Efficient Tax Planning: How and When You Should Do It

Two years ago, the Republican-controlled United States Congress passed the Tax Cuts and Jobs Act. The law, which President Donald Trump signed into effect, made filing taxes easier and simpler. Even more so when we consider the already existing online tax-preparation software, alongside some handy IRS customer service features.

The picture, however, isn’t as rosy as it looks. In 2019, only 40% of taxpayers did their own filing. The other 60%, including those who submitted their forms online, relied on an accountant. This is despite the fact that professionals charge between $300 and $500 for including itemized deductions.

Taxes Made Easy

Doing your own taxes is not only simple, but it also allows you to save money and time. A few straightforward steps can go a long way.

Electronic Filing

Digital software asks taxpayers graspable questions about their expenses, cashflow categories, and income. After that, the website automatically fills the appropriate IRS forms and submits them. Compare this to having to read the technical descriptions of each item and figuring out what to put on each line.

IRS Customer Service

Taxpayers may call the IRS directly for support and help with preparing tax returns. Just as importantly, they can download guides that simplify complex forms and filing instructions. 

Periodic Budgeting

Preparing financial statements on a monthly or quarterly basis is a great way to stay ahead. Likewise, electronic filing software companies provide taxpayers with apps that help them track their finances every time they make a deductible purchase.

Tax Planning and Cost Efficiency

During the first five months of 2019, the IRS received about 142 million tax returns. Over 90% of them (128 million) were submitted through electronic filing software.

Most of those (56%) were reviewed or compiled with the help of an accountant. Yet, whether or not a taxpayer prefers to work with a professional, careful planning and online filing can save them plenty of money.Tax Time

Firstly, apps are much cheaper than accounting firms. In fact, consumers can download software for $100 or less, which is merely a portion of what it costs to go through tax preparation companies.

Secondly, the IRS customer service department may provide assistance in areas that an accountant would normally charge for.

Equally as important, even if you work with a professional, early tax planning is still a cost-efficient route.

Periodic budgeting, organized paperwork, and digitally-completed forms all make an accountant’s job easier and less time-consuming. As a result, customers save money on fees or hourly charges.

Monthly and Quarterly Financial Statements

Instead of reviewing finances and documents right before the filing deadline, households can regularly update their budgets every month or quarter.

After that, at the end of each year, taxpayers will easily find the information that they need to report. This also prevents clutter from adding up because it keeps receipts and statements organized.

Moreover, certain apps and software can make this part even easier. When a user makes a deductible purchase (such as a health insurance copayment or school supplies), they note down the expense on the app.

Taxpayers only need to review the information when filing season knocks on the door. Subsequently, the apps will automatically add these items to the forms.

Discovering New Deductions

The closer we get to the April deadline, the busier that accounting firms are. When companies are preparing thousands of tax returns, it becomes difficult for them to give your documents the individualized attention that they deserve.

In this instance, it can be easy for them to miss certain deductions or refunds that a consumer is eligible for.

Self-filing, on the other hand, allows taxpayers to identify these opportunities. After all, individuals understand their own, personal situations more than anyone else does.

Taxpayers should dedicate time to research, read online guidelines, and contact the IRS customer service team if they have any questions.

These resources pave the way to potentially valuable deductions and tax benefits.

The Case for Accountants

Critics of digital or self-filing methods may suggest that paying a professional company is worth it. They have years of experience and seasoned experts. The IRS’s manuals and apps cannot replace that.

Similarly, consumers will spend plenty of time gathering documents and reading forms if they choose to self-file.

These critics, however, are wrong. Nationally renowned accountants and financial specialists designed digital tax software, to begin with. Moreover, the IRS’s website lists eFiling companies that they work with and endorse.

Lastly, individuals and households don’t need to research the entire tax code. They should only understand the aspects that are related to their expenses, income, and personal cashflows.Cropped image of loving young couple analyzing their finances

As far as time is concerned, preparing your own taxes is still worth it. According to the IRS, it takes an average of 16 hours to do so. When compared to an accountant’s $300 fee, self-filing can save you almost $20 per hour.

Keep in mind that taxpayers still need to drive to the accounting company’s office, assemble documents, and regularly communicate with the firm.

All of this will take at least several hours. In other words, the time-burden of self-filing is minimal when compared to hiring an account. Meanwhile, the savings become even more lucrative.

A Hassle-Free Process

Just as with any other task or responsibility, it pays to be organized and well-prepared for your taxes. Consumers save money and time, regardless of whether or not they hire an accountant. Taxpayers may also discover deductions and credits that they were previously unaware of.

Professional filing firms are expensive. They also still require you to collect documents and organize receipts. Apps, on the other hand, are more efficient. The IRS customer service team also provides free support and guidance.

As the upcoming tax season looms, try to figure out how long it took you to prepare last year’s returns. Just as importantly, compare how much you paid the accountant (if you worked with one) and determine if spending 16 hours on your taxes is worth the savings.

For many people, it is. Especially when we consider all the available resources that make this process easy and simple.

Show More

Related Articles

Back to top button