Preparing For Tax Filing Season: Tips for staying organized throughout the year
In order to successfully file your tax return and avoid mistakes, which could be costly, it is important for you to properly report your tax information. Prepare yourself ahead of time by having your tax information organized and readily available. This will help you be less frustrated and be more efficient in filing your returns. A common challenge for many taxpayers is organizing their information which often leads to missed or over-stated deductions, under-reported income, inaccurate or un-taken tax credits, etc. All of which can lead to audits and questions from the IRS, penalties and interest, and overall inconvenience to you. Keeping an appropriate filing system can be extremely helpful in staying on top of things. Just be sure that it is simple and accessible so that you can easily drop receipts or other documents into it as you receive them. Also, be sure to know and verify that your social security number, as well as that of your spouse and dependents, is accurate. A missing or inaccurate social security number could cost you by delaying the processing of your return, delay your refund, or disallowing a tax credit.
There is a reason for the title “Income Tax!”
Uncle Sam wants to know how much income you earned so that he can get his fair share. Here are some common types of income you may earn and need to keep up with.
- If you are an employee, your employer should send you a W-2 which shows your income. Keep in mind that if you worked for more than one employer throughout the tax year you should receive a W-2 from each of them. If you have not received this by the end of January, contact the employer right away. Additionally, the IRS taxes lottery and gambling winnings which you must report on your 1040. You will receive a Form W-2G for these earnings. Keep a file for all of your income information. It is a good idea to also hang onto your year-end financial statements to compare with the final tax documents.
- If you are self-employed or an independent contractor, you will receive a 1099 from each entity which paid you showing your gross earnings. Wage income is not the only earning information that the IRS is looking for. If you are saving money through savings/money market accounts, stocks, mutual funds, etc. you will need to include the interest and dividends you earned. Earnings are documented through a 1099 and you should receive one from each entity that paid you.
Trim your taxable income and reduce the amount of taxes you pay!
- Homeowners who are paying a mortgage and taxes can deduct these amounts on their return. This is not limited to your primary residence. You may also include vacation/second home interest as well. You will receive a form 1098 for each mortgage and/or equity loan/line you have which includes the interest you paid.
- If you don’t own a home don’t worry. You are entitled to deduct your state and/or county personal property taxes on your schedule A.
- Good Deeds can be rewarding at tax time. If you give cash to a qualified charity be sure to obtain documentation or a receipt acknowledging your gift especially if it was $250 or more. You do not need a formal receipt if it was less than $250 but you still need some sort of documentation such as a cancelled check or bank/credit card statement just in case the IRS has questions. If you are dropping off non-cash, household items or clothing at a charitable collection center be sure to obtain a receipt documenting what you donated and a conservative value for each of the items. Volunteering can also lead to a deduction as you may be able to deduct a certain amount per mile that you drive to help the organization. Documentation is key so be sure to log your miles.
- Contractors and self-employed taxpayers are able to deduct certain business expenses, so be sure that you are appropriately maintaining detailed documentation for these.
Organizing your taxes early can save you time, headaches and oftentimes MONEY!