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Tax preparation is the process of filling out a tax return with accurate financial information to determine tax liability and find out if a taxpayer owes money or is entitled to a refund. Taxpayers may do this themselves or hire a professional to do it if they are concerned about filling out the paperwork correctly or want to see if it is possible to save money on taxes. Professional tax preparers must have licenses to practice and can provide information about their training and certifications on request from customers.
The process of tax preparation requires obtaining the correct tax form for a taxpayer's needs, along with any additional worksheets and paperwork. For some, this may be easy, as they can use the basic tax form with no additional paperwork. Others may have more complex taxes because they are running businesses, handling complex income, or engaging in other financial activities that make their tax declarations more complicated.
With the form in hand, taxpayers can gather their supporting materials, including official tax declarations sent from employers, banks, and other sources; receipts from financial transactions; and any other financial documentation they may have. It can help to scan the form and generate a list of necessary supplies so the taxpayer can gather these before starting. Taxpayers using a professional for tax preparation will usually receive a list of the information they need to bring.
The next stage involves filling out the paperwork, taking care to make sure declarations are accurate and complete. At the end of the tax preparation process, the taxpayer will consolidate all the information on the forms as directed to find out what her taxable income is, and will use this as the basis to find out the total she should have paid in taxes over the course of the past year. If she overpaid her estimated taxes, she gets a refund. If she underpaid, she must submit a payment to make up the difference.
Professional tax preparation can save money. Accountants, tax attorneys, and similar professionals are very familiar with the tax law and know all of the tips and tricks for reducing tax liability. They can conduct an interview before the tax preparation session to identify areas of savings, such as deductions people are not claiming, or incorrectly filed statements. For basic tax preparation it may be possible to pay a flat fee, while complex taxes usually require an hourly rate.
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