Working on Your Taxes? Get Organized

Even if your tax situation isn't complicated, there's still
documentation the Internal Revenue Service demands. But tax filing
doesn't have to be an ordeal. And it can be less frustrating and less
time-consuming if you have all the material at your fingertips.

By being prepared, you'll be ready to file your return at the
earliest possible moment (the IRS usually starts accepting returns
around mid-January). And the earlier you file, the sooner you'll get
your refund.

Much of the paperwork you'll need to complete your Form
1040 will tell the IRS how much money you made so they can
tax it. But there is also information that will help you trim your tax
bill.

To help you organize your tax paperwork, here are some of the
most common documents you'll need.

Filing by the (identification) numbers

The IRS tracks every taxpayer through a Social Security
number. For those of you who file your own returns, this isn't a
problem. If you drop all your data off at your accountant's office,
make sure that your Social Security number is in there, as well as your
spouse's if you file jointly.

Do you have any dependents -- children, parents -- that you'll
be claiming? Then you'll need those numbers, too. This includes
everyone, even infants. If your kids don't have their numbers yet,
contact the Social Security Administration immediately. A missing
Social Security number for any person listed on your return could cost
you.

The IRS could delay the processing of your return, slow down
any refund, or even disallow a credit if you don't have the
identification numbers to support it.

And don't forget the tax identification number of the person
or business that takes care of the kids while you're at work. You'll
need it if you file for the child care credit. You should receive a
statement from the care provider that includes his or her tax ID
number, as well as the amount you paid, so you can use it to claim the
credit.

It is called an income tax

Since it's our income that the taxman wants a piece of, start
thinking about the employment and income data you'll need to file.

By the end of January, employees should get a Form W-2 from
the boss showing how much was earned, how much is taxable and just what
taxes were withheld. If you have more than one job, you should get a
Form W-2 from each employer.

You say you're still waiting for your W-2? The IRS has a
substitute form, Form 4852, you can use in its place.
You'll need last year's final pay stub for data to enter on the
alternate W-2. And even if you have your official tax form, check it
against that last pay stub to make sure the W-2 data is correct.

If you're an independent contractor, the company you worked
for should send you a Form 1099-MISC showing your gross earnings. You
can view, but not download, Form
1099-MISC online at the IRS Web site.

If you're self-employed, you have a bit more work to get
organized. Track down all receipts and documentation for
business-related expenses, from the mileage records you kept when using
your car for business to the office equipment and supplies you bought
to the utility bills you paid to keep the home-office lights on.

IRS interest in your other assets

Wage income isn't the only
earnings that the IRS taxes. Are you saving money for your kid's
college, a new house or retirement? Good for you -- and the taxman.
Interest earned on most savings accounts is taxable.

You should get statements from each of the
account holders, as well as formal tax forms. Copies of the forms also
go to the IRS.

For interest earnings, these documents are
typically Form 1099-INT.

If
you've branched out into stocks or mutual funds, you should get a Form
1099-DIV for each stock, mutual fund or money market account. Reports
on the proceeds from broker transactions, if you use one, will be sent
to you on a Form 1099-B.

Just like with your final paycheck stub,
hang onto your year-end financial statements to compare with the
official final tax documents.

That pesky miscellaneous income

Did you get a state tax refund
last year? Did you rent out that old
house you fixed up? Did you finally settle into retirement thanks to
those monthly pension checks? There's a place for each of these on your
tax return, so start getting this paperwork in order, too.

State and federal tax collectors work
together. In the case of state tax refunds, that means the Form 1099-G
you get detailing your refund also goes to the IRS, so hang on to your
copy and report it.

Rental property can provide a nice boost
to your balance sheet, but make sure you keep track of all it cost you
to keep your tenants happy. These expenses can be used to offset your
rent income, and that means less of your investment property earnings
are taxable.

Some retirement payouts are taxable, at
least in part. To help you determine exactly how much you owe, you'll
get a Form 1099-R showing how much was paid to you during the year.

What if it wasn't such a good year
financially? Let's say you were out of work for a while and collected
unemployment. Sorry, but unemployment is taxable. You'll get a separate
Form 1099-G for this, so it needs to go into your filing preparation
package.

Tax trimming starts at home

OK, you know what information
you'll need to report your income. Now
it's time to do the pre-filing preparation that could help you trim the
taxable amount.

Costs related to your home are a good
place to start.

Homeowners
know the value of a mortgage. Not only does the loan get you into your
house, but the interest you pay on it is deductible. Your lender will
send you a Form 1098 with this amount. You can check out your loan
amortization schedule and get an idea of just what the deductible
interest amount will be.

If
you made an extra mortgage payment at the end of last year to up that
interest amount, make sure it's counted. Sometimes lenders use
automatic reporting programs that overlook extra payments. You can
still claim the extra interest; just make sure you document it in case
the IRS follows up.

Mortgage
interest isn't limited to your primary residence. If you have a
vacation home, interest on that loan will be on a separate Form 1098 --
and is just as deductible.

And don't forget the interest you paid on
a home equity loan. Your year-end loan account statement will tell you
how much this was, and in most cases it's deductible on your Schedule A, too.

Using taxes to reduce taxes

Homeowners get another way to
reduce what they pay to Uncle Sam -- using the real estate taxes they
pay as a deduction.

If
part of your mortgage payment each month includes an escrow amount
that's used to pay annual real estate taxes, then the 1098 form you get
from your lender also will tell you this amount.

Then
there are any state and local income taxes you paid. Check your W-2 for
this information, and be sure to deduct it, too.

Don't
own a house? Don't despair. There's still a tax deduction opportunity
for you if your state or county charges a personal property tax. Most
often, this tax is on autos, so if you pay, make sure the collecting
tax agency sends you a statement showing how much so you can put it on
your Schedule A.

Work expenses can cut your taxes

Did
you look for a new job this year? Kept your job, but had to shell out
for work-related items and never got paid back? Move to take a new job?

All
of these situations can help reduce your tax bill, as long as you've
got the documentation. In the case of job searches, find those receipts
for anything related to your hunt -- as long as you're looking for work
in the same field.

If
you kept your current job, but had to pay for some items that your boss
didn't reimburse you for -- travel expenses, uniforms, union dues,
subscriptions -- then these can be deducted as miscellaneous items on
Schedule A. Again, you'll need the receipts, so go through your
paperwork collection carefully.

Good works, good records, good tax break

Good
deeds can be their own reward; they also can reward you at tax time.

Cash
donations to qualified charities can be deducted, and you should get a
note from the charity acknowledging your gift if it was $250 or more.
Next year, you'll need this documentation for every cash gift,
regardless of how large or small.

You'll
also need that receipt you got when you dropped those clothes and books
off at the local Goodwill collection center to claim a deduction. And
thanks to a new law, you also better make sure that the articles were
in good or better shape. The IRS now can deny deductions for anything
that it deems of "minimal monetary value." So no giving away threadbare
sweaters that really should go in the trash and then writing the gift
off.

But you can still get credit if you
volunteered at the local soup kitchen. No, you can't deduct the value
of your time, but if you drove there, then you can deduct your mileage
at 14 cents per mile as a charitable gift. Documentation of your effort
can be as easy as a notation in your calendar of the days you worked
and where the shelter is located.

Accurate
taxes require accurate information
Now that you know what data you'll need to file your taxes you've taken
a big first step in the process.

By
knowing what information you need, digging out those documents now and
keeping track of all the tax-related account statements you've
received, you'll immediately realize if you're missing anything or if
something needs to be corrected.

In
either case, you still have plenty of time to track down the proper
documentation -- saving you time, anxiety and possibly money when you
file your return.

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