For most people, the hardest part of their tax year is pulling everything together in preparation for filing their returns. Oftentimes they misplace their tax information, receipts, and so on. You can fill out the tax forms yourself or have us do it for you. Either way, the IRS holds you responsible for the accuracy of the information reported. The IRS will look to you for documentary proof of the deductions you claim. Whether you enlist the help of a tax preparer or not, the time to start preparing for tax filing is at the beginning of each tax year.
One of the keys to sound tax planning is good organization. The sooner you begin organizing your tax data, the better off you’ll be. All the careful tax planning you have done will count for naught if you cannot produce the records and the facts that you need at tax-filing time. Our main function is to help you make the most of the tax law so you can save money. You do not want to waste your time – and your money – sorting through, organizing, and interpreting numerous slips of paper.
RECORDS DETAILING INCOME
You need to gather the following records to account for your income. Keep in mind, your employer, bank, broker, or a dividend-paying corporation in which you own stock is required by law to mail W-2’s or 1099s by January 31st. So if you have not received the information by, say, February 10th (a date that allows for mail delays), start making inquiries. The following summary will help you determine what documents you will potentially need to gather in order to prepare your taxes:
WAGES: Copies of all W-2 forms.
DIVIDENDS: All copies of your 1099s.
INTEREST: Again, all copies of your 1099s. Also, include any year-end statements you received for tax-exempt interest income, such as from municipal bonds. If you have made loans to friends or relatives, include information on those loans too.
SELF-EMPLOYMENT INCOME: Any 1099s you’ve received from customers or clients, your checkbooks for the year, any other books you have kept, and your bank statements. Summarize all of your receipts and expenses by category on a piece of paper, or if you use a computer to keep track of these items, bring a hard copy of the document and possibly a copy on disk. Also, collect all your travel, meal, entertainment and automobile records, including your charge card slips.
CAPITAL GAINS AND LOSSES: The purchase and sale transaction slips for any securities you may have sold. Make sure the sales slips agree with the Form 1099-B you received from your broker.
PARTNERSHIPS, ESTATES AND S CORPORATIONS: Schedules K-1 received from any of these entities. This form lists your share of income or credits, deductions and preference items. Also, for partnerships and S corporations, be ready to explain to your tax preparer whether your involvement is active or passive.
REAL ESTATE ACTIVITIES: Supporting documentation for your income and expenses (with bank statements and canceled checks or invoices) for the year. Summarize them by category on a piece of paper or electronic file. If you bought the property this year, bring your closing statement. Summarize a list of any improvements made to the property this year. And if you or any family members used the property during the year, know how many days of personal and rental use were involved. Other income: All other slips of paper starting with a W or 1099 that organizations have been sending you. List them on a sheet of paper. For instance, you may have received:
? State tax refunds
? Pensions or annuities
? IRA distributions
? Unemployment insurance
? Proceeds from real estate sales
? Social security benefits
RECORDS DETAILING EXPENSES
Up to this point, the records you have been collecting will help you account for your income from various sources. Now you want to be sure that you also have the records you’ll need to justify the deductions you have coming to you; deductions that will help you offset some of this income for tax purposes.
? IRA'S AND KEOUGHS: Records of these investments, including the current year contributions. Under certain conditions, your IRA contribution is fully or partially deductible from your gross income. And you may deduct the money you’ve invested in a Keogh.
? MOVING EXPENSES:In general, you can deduct qualified moving expenses only if your employer did not reimburse you for the expenses.
? ALIMONY: Canceled checks as proof of your payment. You may deduct any alimony you pay.
? EMPLOYEE EXPENSES: If your employer provides you with a car and reports the value of your usage of the auto on your W-2, your mileage log and any other documents that pertain to the car.
? MEDICAL EXPENSES: If you think your medical expenses will exceed 10% of your income, all your receipts from doctors, dentists, hospitals, pharmacies. If you had to modify your house for medical reasons, bring the signed statement from the doctor and the receipt for the improvement. You are also entitled to a deduction for medical mileage. Also, do not forget to include information about insurance reimbursements you might have received during the year.
? TAXES: Sales taxes are deductible again for 2015. Other taxes, such as state and local income taxes, real estate property taxes, and personal property (excise) taxes are also deductible.
? CONTRIBUTIONS: Canceled checks or the receipts you received for your current year’s charitable contributions. If you gave old clothes or secondhand goods to a charity, bring the list you made or the receipt you received.
?INTEREST:Interest deductibility depends on how you use the borrowed money. Separate your interest expense into the following categories:
? Residence interest (principal, second, & other)
? Mortgage points
? Credit card interest
? Investment interest
? Business interest
? Passive activity interest
Investment interest includes interest on money you borrowed to buy stocks or bonds – margin account interest, for example. Bring broker and any other statements summarizing these interest costs. If you paid at least $600 of mortgage interest to a financial institution, government agency, cooperative housing corporation, or other entity engaged in a trade or business, you should have received a Form 1098 showing the total mortgage interest you paid. Bring this form with you to your tax preparer.
It is important to gather all of your information because the more organized your data, the easier it is for us to efficiently prepare your return and save you tax dollars. Also, the earlier you start your planning, the better the tax-savings opportunities. In fact, the best plan is to keep your records organized on an ongoing basis. Finally, stay in touch with your adviser as your financial circumstances change (e.g., you get married, sell your home, make a killing in the stock market). Remember, you must invest your time today if you’re to save tax dollars tomorrow.