3 Essential Steps to Start a Stress-Free Tax Season

Peter Donisanu
10 min readJan 26, 2023

Most individuals can’t stand preparing their taxes. It’s often a complex, confusing process that leaves many fearing the dreaded audit from the IRS.

And according to the latest data from the IRS, 1.8% of tax filers with reported total positive income between $1 and $5 million received an audit letter from the IRS in 2021.

While this number seems low, it certainly is higher than your chances of winning the Powerball lottery (currently 1 in over 292 million) and a key reason to have all of your ducks in a row before you file your returns this year.

Audits aside, being adequately prepared to complete your returns this tax season is essential to a stress-free and smooth filing season, especially if you have a complex financial situation.

Indeed, waiting until the April deadline to file your taxes this year could leave you with a last-minute scramble and the potential for lost opportunities (or unnecessary penalties) without proper preparation.

To be sure, the deadline for filing your taxes is months away, and you likely haven’t received all of your critical tax documents from your employer and financial institutions yet. However, you can still do several things right now to prepare for the tax filing season.

This month, we’ll cover a few essential items to consider as we head into the tax season, including what you should do with your tax documents, whether to file on your own or hire out help, and some key deadlines to consider ahead of the filing season.

To begin, let’s take a look at one approach to efficiently organizing your tax return documents.

Establish a Place to Secure Your Return Documents

Now, whether you’re filing your returns on your own or working with a tax professional, organizing all your essential tax documents in one place will simplify the process of completing your returns and shorten the time it takes to complete the task.

Over the coming weeks, you’ll likely receive copies of your W2s, 1099s, and other essential documents, either digitally or in hard copies, by mail.

Many individuals who receive these documents in the mail set the envelopes aside in a kitchen drawer without taking a look at what they’ve received until it’s time to file and then scramble to find all the necessary paperwork days before the filing deadline.

So, what should you do when you receive these tax documents?

Well, when you receive your tax documents, open the envelope or visit your financial institution’s website and take a moment to review the records immediately. Believe it or not, it’s common for financial institutions to make reporting errors.

Indeed, in several instances, we’ve had some clients receive 1099s with cost-basis errors on transferred securities and rollovers that could have cost them tens of thousands of dollars in taxes if we didn’t catch the error early.

So, be sure to review those tax documents before you file them away.

Another big question when the emails or tax documents begin rolling in through the mail is, “where do I store these documents?”

The simple answer here is: digitize your documents. Even if you enjoy working with paper, take a few moments to take a quick picture of your tax document with your phone and email it to yourself. Doing so right away can ensure that you capture this critical paperwork correctly before you begin your filing prep.

And when it comes to storing digital copies of documents, some individuals prefer to store these documents on their computer or phone.

Now, while this approach works, consider saving these essential documents to a secure cloud-based server or digital vault like the one offered through your financial planning website.

Why?

Well, here are a few benefits to storing your essential tax documents on the cloud:

First, your documents will remain safe if something happens to your computer or phone.

This fact is especially salient if data is not recoverable from your computer or phone. It could also prevent essential documents from being inadvertently deleted or overwritten as many cloud providers offer backup services.

What’s more, if you inadvertently download malware or ransomware, a fraudster could gain access to your computer, steal your personal information, or hold it hostage until you can pay them a ransom.

Another benefit to using a cloud-based approach to store your tax documents is that it likely will give you access to your records when you’re away from your computer.

For example, suppose you’re working with a CPA to prepare your returns and, for whatever reason, your professional has not received a critical document from you. In this case, having followed the simple steps we outlined earlier, you could simply log in to your cloud and send it to your tax professional without waiting until you get back to your computer.

To Do: Establish a Place to Secure Your Return Documents

So, what are your options for storing your tax return documents on the cloud? Well, some noteworthy options include Apple’s iCloud service, Microsoft OneDrive, Google Drive, and Dropbox, to name a few.

Another alternative for storing your tax return documents securely is using the digital vault in your personal financial planning website provided to you by your financial planner. This approach offers the same conveniences as a cloud-based solution and also ensures that all of your critical financial documents are stored in the same place.

Whichever approach you choose during this year’s tax season, be sure to take a look at your tax documents to catch errors early, grab a picture of your documents and store them in a cloud-based solution to avoid losing critical paperwork ahead of key filing deadlines.

Determine Who Will Prepare Your Return

Now that we’ve talked about organizing your paperwork, another essential component to being prepared this tax season is determining who will file your returns.

Now, whether you decide to file your own tax returns or work with a professional, knowing where you stand now will save you time and headaches down the road.

What to consider when self-preparing returns

If you have a simple financial situation and typically file a 1040EZ, then it likely would make sense to prepare your taxes on your own using online services like H&R Block or TurboTax.

If you’ve used services like these before, great! You’re likely familiar with their features and benefits.

Either way, be sure to log in now, update your personal information, and familiarize yourself with any changes to the providers’ products, services, and processes as you wait for your income and financial documents.

Doing so likely will make your tax preparations straightforward this year.

Another key consideration for many of you self-filers out there is, of the two biggest prepares out there (H&R Block and TurboTax), which would should you use? Well, when it comes down to it, most online services use similar approaches and get the job done.

H&R Block, however, is in many ways a lower cost option overall, and I’ve used their service personally for simple and complex returns over the past two decades without issue. Again, many of the major online tax prep services offer the same features and benefits. Which one you choose likely will come down to a matter of preference.

Either way, take time to evaluate your options and familiarize yourself with the various self-filing options out there. That way, you’re not changing service providers a week or two before the April deadline and scrambling to learn a new system under the pressure of teh filing deadline.

When to hire a professional to complete your returns

Now, if you’ve had significant life changes in 2022 or your financial situation is more complex, then you’re likely best served working with a professional.

So, if you decide to hire out the work and still need to find an accountant, you had better get looking sooner rather than later.

Make no mistake, it’s getting harder to find qualified tax pros in recent years.

Indeed, given recent changes to the tax code, retirements, and other structural challenges, there has been a need for more qualified tax preparers.

And if you’re in the market to have your taxes prepared for you, then you had better act now, as CPA bookings are filling up quickly.

So, what should you look for when hiring out your tax prep work? Well, as you go about looking for someone to prepare your taxes, consider asking the following questions before hiring a professional:

Ask about their specialization: CPAs (Certified Public Accountant) and EAs (Enrolled Agents) can specialize in many accounting areas, including business, government, and forensic accounting, as well as tax preparation. For preparing and filing your taxes, consider finding a professional specializing in individual income tax returns or business returns. If you have stock options, restricted stock, or other forms of stock awards, make sure your preparer is familiar with the tax consequences of these income sources.

Ask whether they’re licensed: Believe it or not, there are some bad apples out there taking advantage of the accountant shortage and holding themselves out as CPAs when they’re not. That’s why it’s essential to know that the state licenses CPAs, so before hiring one, you can search their records with your state’s board of accountancy. Most states offer CPA databases that allow you to search by name and find important information on a CPA’s license status, issue, expiration dates, and disciplinary actions and suspensions.

Ask if your preparer is experienced: While all CPAs are credentialed before offering their services, CPAs with several years of experience will more likely have a deeper understanding of the tax code than a newly certified individual. Surprisingly, not all professionals understand the tax consequences of equity compensation.

Ask if your preparer will sign your returns: Verify that your CPA or EA will sign your tax return and represent you before the IRS for any tax matter related to your return. If not, consider finding a professional who will.

Ask if they offer tax planning advice: A good tax CPA or EA will not only prepare and file your return for the current tax year, but they can also offer year-round tax planning advice to help you maximize your tax savings for years to come.

Ask how much they charge: CPAs and EAs can charge by the hour, flat fee, or other payment options based on the complexity of your taxes. This includes how many schedules and supporting forms you’ll need to file with your return. Also, be sure to find out if their fees include federal, state, and local filing. Finally, CPAs generally are not allowed to base their fees on a percentage of your tax refund, so you may want to avoid this type of pay arrangement.

Ask if your preparer will file your returns electronically: The IRS lists several reasons why you should e-file your federal tax return. Chief among them is to ensure better accuracy and completeness for your return, but also because it adds safety and security for your information and results in faster refunds if you’re due one. What’s more, the IRS requires tax preparers who file 11 or more tax returns per year to provide e-filing services, so if a CPA or EA does not offer e-filing, they may not be very experienced.

Finally, ask how your preparer will support you if you get audited: No one wants to get audited, but they still happen, as we mentioned earlier. In that event, you’ll want a qualified tax professional like a CPA to represent you before the IRS or Tax Court. They can gather your documentation to prepare your return and deal with the IRS directly if you authorize them to do so on your behalf. Having a licensed CPA discuss your tax return with the IRS is likely a better option than you doing it alone.

Taken together, if you’re self-preparing your returns this year, be sure to identify your online tax prep service if you haven’t already.

And if you’re looking for help to file your returns this year, acting sooner rather than later may ensure that you find a qualified preparer before they get overbooked.

Stay Ahead of Key Deadlines & Milestones

Finally, as you secure a safe place for your return documents and settle on a service to prepare your taxes, you’ll also want to ensure that you stay on top of crucial filing deadlines for the year.

To Do: Stay Ahead of Key Deadlines

Certainly, April 18, 2023, is likely the critical deadline you’ll want to pay the most attention to this year.

But there are also other events leading up to and following the individual filing dates:

It’s Not Too Early to Begin Preparing for Tax Season

While the April 18 deadline is still months away, there are still many things you can do right now to prepare for what is likely to be another hectic tax filing season in 2023.

This includes 1) taking a quick look at your tax documents and making a digital copy immediately upon receipt, 2) determining whether to self-prepare or hire out your tax returns this year, and 3) staying informed about key tax deadlines to avoid missing out on planning opportunities or tax penalties this year.

In our other posts, we cover essential life changes and events that could affect your taxes and last-minute tips to consider before filing your returns.

Either way, taking these first steps to prepare to file your returns could set you up for a stress-free tax season. But more essentially, doing the work now to get your financial house in order likely will put you one step closer to mastering your journey to financial independence.

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Peter Donisanu

I help first-gen tech professionals get their financial house in order so they can live their legacy.