Tax season is a stressful season for corporates as well as individuals. The primary stressor stems from the legal consequences of tax evasion. Whether you deliberately concealed vital information about your business or personal finances or were due to oversight, the legal procedures assume evasion unless provenance is established.
These potential legal costs make many people afraid during the tax season. Unfortunately, fear does not bring solutions; instead, it can drive you to much more mistakes.
Ecommerce sales tax refers to the levies imposed by government authorities on the sale of goods or services conducted through online platforms. This tax is applicable to online retailers, businesses, and individuals who engage in commercial transactions over the internet. The complexities of ecommerce sales tax arise from the diverse tax regulations across different states, countries, and jurisdictions. Sellers must be aware of their tax obligations and understand the thresholds that trigger the requirement to collect and remit sales tax.
Therefore, preparation for tax season is crucial to everyone keen on avoiding the back-and-forth many people are forced to go through to fulfill their fiscal duties. Whether you plan to undertake the return filing procedure yourself or hire a tax accountant, you will make a huge difference by putting everything needed in place.
Here are ten essential documents you need to put in place as you prepare to have a seamless tax season:
- Tax Envelopes
This may not be part of the statutory documentation you need to fulfill the taxman’s requirements, but it will help you do your assignment well. There are special tax form envelopes that make it easier and safer to mail your forms.
They include W2 envelopes and 1099-misc envelopes and are essential since they eliminate the need for labels as they are designed to show your company’s and recipient’s addresses. Your documents will be mailed safely, reducing chances of loss or damage.
- Identification Documents
Identification documents are taken seriously by government agencies in charge of taxes, like the Internal Revenue Service (IRS).
Your national identification document or passport should be the first and most important document you must have in place as you prepare for the tax season. Ensure consistency, and in case of any changes, you need to make the updates accordingly.
- Proof Of Income
As you think of your tax returns, it is good to know that the government bodies are keen on precision. The tax incidence should not go below your fair share of its burden.
The government will not tax more than your actual earnings, nor most of your earnings, but the exact amount you earn. You must have a clear copy or proof of your earnings and ensure you don’t forget any, as that is legally punishable.
- Acquisition Costs for Property
In case you acquire some assets, such as rental property, stocks, a vacation home, etc., you need to keep a clear record of these acquisitions. If you don’t have a clear record of acquisition costs, you may end up with an overwhelming tax burden when you need to sell them.
- Inherited Property
You would be in for a shock if you thought you could clench your fist tightly around your tangible bequests and go free without sharing a little token with the tax man. The tax liability on inherited assets is based on their value on the date of death of the one who passed it on to you.
It is, therefore, critical to have them valued as of the said date to ensure that the tax burden is fair and just right.
- Documents Validating Your Expenses
Most people are not keen on keeping track of their expenditures. For general financial literacy, it is proper to keep a good record of expenses to help you budget well. What about about during the tax season?
It is worth noting that there is a class of expenditures that can reduce your tax liability, and precise records can help you benefit from them. The most prominent in this category of expenditures are medical expenses and student loan interest.
- Evidence Of Paid Taxes
Some people fall victim to paying double taxes, and in most cases, it is due to ignorance and neglect on their part. The only way to avoid double taxation is to have proof by presenting documents that show any taxes you might have already paid.
A common area where most people tend to find themselves affected by double taxation is real estate taxes. When you keep evidence to prove that you have paid taxes in such areas, it will help you avoid double taxation.
- Prior Year’s Tax Returns
You always need to keep your tax return files for all years, as they can be great legal tools to prove your innocence in case of any legal concerns. Otherwise, for the current year’s tax season, you need the prior year’s tax returns, especially for businesses, to ensure consistency and correction of any errors.
- Proof of Losses
Losses are common emergencies that businesses as well as individuals can meet in the forms of fire, theft, natural disasters, etc. Legal requirements provide tax relief to individuals and businesses who have sustained recognized losses.
Official documents like police reports, honored insurance claims, or recognized witnesses can help you benefit from tax relief when you have incurred losses.
- Documents of Your Home
Homes are substantial investments and, as such, can attract a lumpsum tax burden when being sold. Homes appreciate over time, and this is due to investments you put in cash and kind.
You need to have a good record of your home documents to ensure you don’t end up with a huge tax burden and gain less revenue when you sell your home.
Conclusion
Most people are stressed during the tax season. The two possible reasons for this are that most people don’t plan and end up being overwhelmed at the last minute, or they simply do not know what to do.
Whether you know what to do or not, proper documentation will make a huge difference in making the process easier and less cumbersome. So, make the list of documents you need to be ready with in order to process your tax efficiently and effectively.