Whether your tax situation is simple or complex, taxpayers still need to gather the necessary documentation. Tax time need not become a stressful experience. Ease the frustration and save time by becoming organized. By preparing in advance, taxpayers gain the advantage of having the ability to file early, which is especially desirable if planning on receiving a refund.
Social Security and Tax Numbers
The IRS requires social security numbers in order to keep track of taxpayers. Whether filing singly, with a spouse, or having dependents, collect all of the necessary social security numbers available. While this information may readily be at your fingertips, remember that anyone preparing your returns also requires this information. Taxpayers may need the an individual tax identification number if they are a foreign resident.
W-2 forms from each employer are needed before one can file tax returns. Self-employed individuals or independent contractors need Form 1099-MISC, which displays earnings. Additionally, self-employed taxpayers must have business related expense receipts. Taxpayers that choose to itemize will need documentation of all possible deductions that might include equipment or clothing needed for employment. Expenses for job searching or meals and housing required for a job related trip may also be documented for deduction.
Wages are not the only income that remains of interest to the IRS. Interest earned on savings accounts, money market accounts, mutual funds or stocks also need reporting. Institutions send copies of this information to the IRS. This information generally comes to taxpayers via Form 1099-INT, Form 1099-DIV, and Form 1099-B. Compare these documents with your records for accuracy.
The interest charged on annual mortgage payments remains deductible. The interest paid on home equity loans is also deductible. Likewise, if owning a vacation home, deduct the interest on that loan. The interest paid on many types of loans remains deductible, with the notable exception of credit card interest.
Taxes that Reduce Taxes
Real estate taxes on any property owned is deductible. When paying a monthly mortgage, lenders typically provide this information monthly and at the end of the year on Form 1098. Deductible local and state taxes paid out of wages are listed on W-2 forms. The taxes paid on vehicles, recreation vehicles, or other personal property during the year are also deducted on Schedule A.
When donating a gift valued at $250 or more, get a receipt for that donation. If individual donations are smaller, the IRS still requires that taxpayers have some type of documented proof. Verify these donations by keeping canceled checks, applicable bank statements or credit card statements. While you cannot deduct any time spent volunteering for various organizations, the IRS will allow 14 cents per mile when having to drive to a specific location. Document this effort by recording the mileage and the dates spent volunteering.
Remember out of pocket expenses for health insurance, medications, physicians visits, mileage, and medical equipment are all deductible.
Understanding the documents needed when tax time rolls around makes it easier to prepare in advance by keeping these papers in a place that is readily available and provides quick access. Setting these documents aside in advance also provides the chance to get corrections early if needed.