The tax season is officially here and millions of Americans are getting their documents together to file their tax returns. The Internal Revenue Service (IRS) is encouraging people to file their taxes quickly, preferably through an electronic return. The agency is understaffed and managing a massive backlog of unprocessed paper tax returns from the previous year.
If you haven't already, now is the time to start getting prepared. Whether you meet with a tax professional or prepare your taxes yourself, proper planning helps the process go more smoothly and may reduce the risk of costly errors. Check out the tips below and prepare to tackle this tax season with confidence.
To-Do #1: Gather All of Your Forms
Beginning in January, you likely started to receive the forms you need to properly complete your tax return. If you are expecting a large refund, you will want to make a list so you don't forget anything that could affect your return. Once you have received your documents, first give them a scan to make sure they are correct and contact the sender if there are any discrepancies. Remember, even a simple misspelling can cause a flag with your tax return. Inspect all of your documents carefully.
Everyone’s tax situation is different, but here is a listing of common tax forms and records you should have prior to filing your tax return:
- W-2 form, which tells how much you earned in the past year and how much you already paid in taxes. (If you had more than one job, you might have more than one W-2.)
- 1099’s for additional income, interest, gains and losses
- SSA-1099 for Social Security benefits
- 1095-A for government marketplace health coverage
- 1098’s for reporting interest and tuition payments
- W-2Gs for any gambling winnings
- Schedule K-1s for company ownership or partnership interests
- Property taxes and mortgage interest
- State and local taxes you paid.
- Retirement account contributions.
- Charitable donations.
- Educational expenses.
- Unreimbursed medical bills.
- Last year’s federal and state tax returns.
If you have made a nondeductible IRA contribution, it’s important to make a note to yourself or your tax professional to file Form 8606. By filling out this form, the IRS will be able to track the after-tax money inside of your IRA and prevent your contribution from being taxed twice.
To-Do #2: Round Up Your Receipts
If you have your own business or plan on itemizing your deductions, you will need to record expenses so that you can take advantage of any available write-offs. Gather all the receipts for business expenses, medical expenses and other expenses that can be listed on your Schedule A or Schedule C. Receipts can be physical receipts or bank and credit card statements that show payments for these items. Once gathered, organize them by type, so they are easy to find when you begin filing.
To-Do #3: Acquire Records of All Charitable Contributions
Throughout the year, you may have made donations to a tax-exempt organization. These donations can provide you with a charitable contribution write off. Traditionally, this could only be done if you choose to itemize your deduction. However, because of the CARES Act, filers who choose a standard deduction may be able eligible to write-off up to $300 in charitable contributions.1 Other donation types will still require an itemized deduction and documentation. Most organizations, from churches to fundraisers, can provide a record of your tax-deductible contributions.
To-Do #4: Create a List of All Personal Information
While you likely know your Social Security number by heart, you will want to jot down the Social Security numbers of any dependents you wish to claim. This way it is easy to access and you can be sure it’s accurate. Also, make a list of addresses for any properties you own as well as the dates on which they were bought or sold.
To-Do #5: Get a Copy of Last Year’s Tax Return
If you are using the same preparer as the previous year, they should have a copy of your tax return. If not, find your old copy and have it ready with your other tax items. Being able to reference your previous return can help you see what you filed last year, so you don't overlook something this year.
To-Do #6: Determine How You Will Spend Your Refund
If you expect to get a refund this year, you may want to take some time to consider what you plan to do with your refund once you receive it. You have the option to apply your payment towards your tax bill next year if you believe you will owe money. This can be a good idea for those who pay estimated taxes throughout the year as it can often put a chunk towards your first installment.
Alternatively, you can choose to send the money directly to a checking or savings account, or contribute it to an IRA, health savings account or education account. If you plan to split the funds between accounts, you will need to complete a Form 8888.
Don't let tax preparation leave you feeling overwhelmed. Enjoy less stress and a smoother process by preparing everything you need for filing this tax season.
Sources: Forbes, Fox News, Twenty Over Ten