Let’s face it, millions of people leave their taxes until the last minute. Sure, submitting them on time is vital – but there is so much more to getting the most from your taxes. Aside from paying the government, you can get many benefits from your taxes, too – if you prepare well.
Most people would instead do anything other than file their taxes; after all, it is such an effort, isn’t it? Going through your figures with a fine-tooth comb – trying to work out what is and isn’t deductible.
Depending on the return you are submitting, you will need to have your Social Security and tax ID number – and those of people on your return. It goes without saying you will also need the date of birth for everyone on the tax return.
Taxes can get complicated pretty quickly, so the earlier you prepare them – the better it is. Unpaid taxes are detrimental to your finances and not something you should be prepared to risk.
Investments and Income
Even if you have just made a few small investments that amount to a few dollars, you will need to have that in your taxes. As well as all of your income.
Form W-2 Wage and Tax Statement
Your W-2 states how much you have earned and how much was withheld for tax purposes. You should have the form by February from your employer; if you haven’t yet, ensure you request it.
Last Year’s State Refund Amount
For itemized deductions, your state refund is considered income when it comes to taxes.
Financial Institution and/or Bank Information
You must make sure you have all of the proper forms for your circumstances. 1098 for mortgage interest, 5498 if you make IRA contributions, and 1098-E if you pay student loan debt.
This must be recorded if you are the beneficiary of the lottery, award money, gambling winnings, or other cash.
There are a string of 1099 forms, and they cover all of the most common income situations. For example, when you make third-party transactions like through PayPal, you’d use form 1099-K—made money through dividends? Then you’ll need the 1099-DIV.
Have a look at our situation, and make sure you have all of the forms you need and the guidance to complete them correctly.
Business Records or Self-Employment
Throughout the year, you should be keeping a strict record of the income and outgoing for your business. Whether it’s 0.05cent or $50,000 – the habit itself is valuable, but you must have all the information available if requested for an audit.
New to freelancing? New here is Everything You Need to Know About Freelancing.
Business Expenses Records
Credit cards statements, payments you’ve made, receipts for goods.
Home Office Expenses
If you take the home office deduction, you will need to measure the space in square feet. Keep in mind that if you choose the expense method, you will need to keep track of all home-related expenses. These expenses also cover your mortgage and utilities.
When you choose to deduct mileage, you will be required to keep track of how many miles you drove for work purposes. It is also preferable to keep your gas receipts too.
Quarterly Estimated Tax Payment Receipts
A smart thing to do is to pay instalments to your tax bill throughout the year. You will have a record of what you have paid given to you from your state and the IRS. You’ll need to include these too.
Finally, keep all of your records for social security benefits, health insurance coverage forms and receipts for any medical bills that were not reimbursed.
Starting early and keeping your paperwork in order will mean tax time isn’t stressful.