Time to start the process—tax time has begun!
After celebrating—and hopefully recovering from—the arrival of the new year, it’s time to start thinking about tax preparation. (We can actually hear our readers groaning out loud after that sentence. Sorry, time to face reality again.) Being organized and proactive can save you headaches and possibly even money when the filing deadline arrives in April. Whether you’re an individual filer or a business owner, having a checklist can streamline the process and ensure that you don’t miss any crucial details. And—you guessed it—we’ve complied a handy one to share with you right here. Happy new year!
1. Gather Personal Information
First things first; before diving into the financials, ensure you have all necessary personal information:
- Social Security numbers (SSNs): Collect SSNs for yourself, your spouse, and any dependents.
- Identity Protection PINs (IP PINs): If the IRS issued you an IP PIN for identity theft protection, make sure you have it ready.
2. Collect Income Documentation
Accurate income reporting is the whole basis for calculating your tax obligation and filing your return. Gather all the forms that document your income for the previous calendar year:
- W-2 Forms: If you’re a wage earner, you’ll need these. Employers should send them by the end of January or make them available online.
- 1099 Forms: These will document income derived from sources other than a primary employer. It can include 1099-MISC, 1099-NEC for independent contractors, 1099-INT for interest income, 1099-DIV for dividends, and 1099-G for unemployment compensation.
- Investment Income Statements: These are forms such as 1099-B for brokerage accounts.
- Rental Income Records: Include details of any rental income received.
- Business Income Statements: If you’re self-employed, prepare your income and expense records.
3. Documentation of Deductible Expenses
Tax deductions can significantly reduce your taxable income. Make sure you have documentation for all deductible expenses:
- Charitable Contributions: Receipts or confirmation letters from charities.
- Medical Expenses: Include receipts and invoices for medical expenses not covered by insurance.
- Mortgage Interest and Property Taxes: Form 1098 from your lender.
- Educational Expenses: Form 1098-T for tuition payments and receipts for other educational expenses.
- Business Expenses: For self-employed individuals, keep receipts for supplies, utilities, and other business-related costs.
- Childcare Expenses: Documentation of payments made to daycare providers.
4. Review Tax Credits
Different from deductions, tax credits can directly reduce your tax liability. Gather documentation for any credits you may qualify for:
- Child Tax Credit: You’ll need information about dependents.
- Earned Income Tax Credit (EITC): Income information is required to verify eligibility.
- Education Credits: Gather form 1098-T and receipts for qualified educational expenses.
- Energy Credits: You’ll need documentation for any energy-efficient home improvements.
5. Organize Investment Information
Keep track of all your investment-related documents to accurately document and report capital gains and losses:
- Year-end Statements from brokerage accounts.
- Purchase and Sale Records for stocks, bonds, and other investments.
6. Life Changes
It certainly does. Major life alterations can impact your tax liability. Be ready to provide documentation of events such as:
- Marriage or Divorce: Marriage certificate or divorce decree.
- Birth or Adoption of a Child: Birth certificate or adoption papers.
- Death of a Spouse or Dependent: Death certificate.
7. Business Tax Preparation
For business owners, preparing for taxes involves additional steps. You’ll need these items:
- Financial Statements: A profit and loss statement and balance sheet.
- Payroll Records: W-2s, W-3s, and quarterly payroll tax returns.
- Estimated Tax Payments: Records of any quarterly estimated tax payments made.
- Inventory Records: If applicable, detail your beginning and ending inventory amounts.
- Business Licenses and Permits: Ensure all are up-to-date and documented.
8. Your Prior Year’s Tax Return
Having a copy of your prior year’s tax return can be immensely helpful. It serves as a reference and ensures consistency in your reporting. Look for carryovers such as capital losses, net operating losses, or tax credits.
9. Consult with a Tax Professional
Consider seeking assistance from a tax professional (like us), especially if you have a complex tax situation. Our firm can provide personalized advice and ensure you take advantage of all applicable deductions and credits.
10. Start Early
Starting your tax preparation early in the New Year can help you avoid the last-minute scramble and reduce stress. Use this checklist to gather all necessary information and documents, ensuring you’re ready for a smooth and efficient tax filing process. Remember, being organized and proactive can make a significant difference in your tax season experience.
For more detailed guidance and personalized advice, don’t hesitate to reach out to our team of tax professionals. We’re here to help you navigate the complexities of tax preparation and maximize your tax savings.