While demands of the IRS can be cumbersome and stressful, filing taxes doesn’t have to be an ordeal. It can be less frustrating and less time-consuming if you have all the materials at your fingertips.
By being prepared, you’ll be ready to file your return as easily and quickly as possible. The earlier you file, the sooner you get your refund. And when the process is organized, you might even save on tax preparation bills.
The key to successful filing is proper reporting. To help you organize your tax paperwork so that you, your tax preparer, and the IRS are happy, here are five ways to get organized for the tax year.
- Tax identification numbers are crucial
The IRS tracks every taxpayer through either their Social Security number (for individuals) or Employer Identification Numbers (for business entities). Provide all ID numbers to your tax preparer. ID numbers of your dependents are also important. A missing ID number will delay processing your return.
- It’s called an income tax
Because it’s your income that the IRS wants a piece of, think about all income from all sources you will need to file. Every employee should get Form W-2 by the end of January. If you were employed by more than one employer, you should get a Form W-2 from each. If you worked as an independent contractor, the company you worked for should send you Form 1099-MISC.
If you’re self employed or have any self-owned business on the side, track down all receipts and documentation of income/expenses. This includes bank statements, mileage records you kept when using your car for business, and any income statements, balance sheets, general ledgers, etc. Rental income is also important.
Retirement income and social security benefits are also reportable. Provide all Forms 1099-R and SSA-1099.
All income from investments must also be reported. This includes interest income, dividends, and gains/losses from stock transactions. Provide all Forms 1099-INT, 1099-DIV, and consolidated forms 1099 from investment firms.
All income and deductions from a partnership will flow to the partner on Schedule K-1. If you are a partner in a firm, provide this document to your tax preparer.
- Tax trimming starts at home
The value of a mortgage goes beyond buying a home. The interest you pay is tax deductible! Your lender will send you Form 1098 with this amount. If you own more than one home, you should receive a separate Form 1098. Mortgage interest paid for a rental property is also deductible against rental income.
If you have a home office from which you do business, take record of your home and office square footage, and home utility expenses. These could be deductible.
Lastly, provide all closing statements for the purhcase or selling of a home if you bought/sold a home in the current tax year.
- Taxes reduce taxes
Keep record of all taxes paid to other taxing authorities. This includes any property taxes, such as real estate and personal property taxes, and state income/franchise taxes. These will help reduce your tax liability.
- Good deeds are rewarding
Good deeds can be their own reward. When you give cash or other property, such as furniture and clothing, to a qualified charity, get a note from the group acknowledging your gift. You can also get a tax break for volunteering by deducting the value of your time. The IRS allows a cents/mile deduction.