It’s that time of year again. If you haven't started, you might want to think about the steps you need to take to get ready. Whether you go it alone or count on a tax professional, proper planning helps ease the processes along and could reduce the risk of costly errors. Check out the six tips below and tackle this tax season with renewed confidence.
To-Do #1: Gather All of Your Forms
Beginning in January, you will likely start to receive tax forms. If you are expecting a large refund this year, you will want to make a list so you don't forget anything that might affect it. Once you have received all of your documents, take a quick look at them to make sure there are no discrepancies. If you happen to find one, immediately contact the sender as corrections can take time. Keep in mind, even something as simple as a misspelling can cause a flag on your tax return. Be sure to carefully inspect all of your documents.
Some of the forms you will need to look out for include:
- W-2s from your employer
- SSA-1099 for Social Security benefits
- 1099s for additional income, interest, gains and losses
- 1095-A for government marketplace health coverage
- 1098s for reporting interest and tuition payments
- W-2Gs for any gambling winnings
- Schedule K-1s for company ownership
To-Do #2: Round Up Your Receipts
If you run your own business or plan on itemizing deductions, you’ll need a record of your expenses so that you can take advantage of any available write-offs. Collect all of your receipts for business, medical and other expenses that can be listed on your Schedule A or Schedule C. These receipts can be physical receipts or credit card and bank statements showing payments for these items. Once collected, organize the receipts by type, so they are easy to sort through when you begin filing.
To-Do #3: Acquire Records of All Charitable Contributions
Have you made donations to a tax-exempt organization this year? These donations can provide you with a charitable contribution write-off. In prior years, this could only be done if you choose to itemize your deductions. This has changed, however. Due to 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 documentation and that you itemize your deductions. From churches to elementary school fundraisers, most organizations will be able to provide a record of your tax-deductible contributions.
To-Do #4: Create a List of All Personal Information
While it’s likely you have your Social Security number memorized, you will want to ensure you have the Social Security numbers of any dependents you wish to claim. This way you’ll have it handy and you can be sure it’s accurate. Additionally, 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 planning to use the same preparer as the prior year, they should have a copy of your tax return available. Same idea applies to tax software. If you’re using the same software as last year, your old return should be easy to find. If not, find your old copy and put it with your other tax items. Being able to reference your previous return can be helpful to double check that you’re not overlooking something this year.
To-Do #6: Determine How You Will Spend Your Refund
If you expect to end up with a refund this year, you should take some time to consider what you plan to do with your return. You have the option to apply your payment towards your tax bill next year if you believe things will change and you will owe. This can be a good idea for those who are required to pay estimated taxes throughout the year as it can often put a chunk toward your first installment.
Alternatively, you can choose to send the money directly to your checking or savings account, or contribute it to an IRA, health savings account or education account. If you plan to split the funds between multiple accounts, you will need to complete a Form 8888.
Don't let tax preparation make you feel overwhelmed. Enjoy a smoother process and feel less stress by preparing ahead and gathering everything you need for filing this tax season.