Even if your tax situation isn't complicated, there's stilldocumentation the Internal Revenue Service demands. But tax filingdoesn't have to be an ordeal. And it can be less frustrating and lesstime-consuming if you have all the material at your fingertips.
By being prepared, you'll be ready to file your return at theearliest possible moment (the IRS usually starts accepting returnsaround mid-January). And the earlier you file, the sooner you'll getyour refund.
Much of the paperwork you'll need to complete your Form1040 will tell the IRS how much money you made so they cantax it. But there is also information that will help you trim your taxbill.
To help you organize your tax paperwork, here are some of themost common documents you'll need.
Filing by the (identification) numbers
The IRS tracks every taxpayer through a Social Securitynumber. For those of you who file your own returns, this isn't aproblem. 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 yourspouse's if you file jointly.
Do you have any dependents -- children, parents -- that you'llbe claiming? Then you'll need those numbers, too. This includeseveryone, even infants. If your kids don't have their numbers yet,contact the Social Security Administration immediately. A missingSocial Security number for any person listed on your return could costyou.
The IRS could delay the processing of your return, slow downany refund, or even disallow a credit if you don't have theidentification numbers to support it.And don't forget the tax identification number of the personor business that takes care of the kids while you're at work. You'llneed it if you file for the child care credit. You should receive astatement from the care provider that includes his or her tax IDnumber, as well as the amount you paid, so you can use it to claim thecredit.It is called an income taxSince it's our income that the taxman wants a piece of, startthinking about the employment and income data you'll need to file.By the end of January, employees should get a Form W-2 fromthe boss showing how much was earned, how much is taxable and just whattaxes were withheld. If you have more than one job, you should get aForm W-2 from each employer.You say you're still waiting for your W-2? The IRS has asubstitute form, Form 4852, you can use in its place.You'll need last year's final pay stub for data to enter on thealternate W-2. And even if you have your official tax form, check itagainst that last pay stub to make sure the W-2 data is correct.If you're an independent contractor, the company you workedfor should send you a Form 1099-MISC showing your gross earnings. Youcan view, but not download, Form1099-MISC online at the IRS Web site.
If you're self-employed, you have a bit more work to getorganized. Track down all receipts and documentation forbusiness-related expenses, from the mileage records you kept when usingyour car for business to the office equipment and supplies you boughtto the utility bills you paid to keep the home-office lights on.IRS interest in your other assetsWage income isn't the onlyearnings that the IRS taxes. Are you saving money for your kid'scollege, 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 theaccount holders, as well as formal tax forms. Copies of the forms alsogo to the IRS. For interest earnings, these documents aretypically Form 1099-INT.Ifyou've branched out into stocks or mutual funds, you should get a Form1099-DIV for each stock, mutual fund or money market account. Reportson the proceeds from broker transactions, if you use one, will be sentto you on a Form 1099-B.Just like with your final paycheck stub,hang onto your year-end financial statements to compare with theofficial final tax documents. That pesky miscellaneous incomeDid you get a state tax refundlast year? Did you rent out that oldhouse you fixed up? Did you finally settle into retirement thanks tothose monthly pension checks? There's a place for each of these on yourtax return, so start getting this paperwork in order, too.
State and federal tax collectors worktogether. In the case of state tax refunds, that means the Form 1099-Gyou get detailing your refund also goes to the IRS, so hang on to yourcopy and report it.Rental property can provide a nice boostto your balance sheet, but make sure you keep track of all it cost youto keep your tenants happy. These expenses can be used to offset yourrent income, and that means less of your investment property earningsare taxable.Some retirement payouts are taxable, atleast in part. To help you determine exactly how much you owe, you'llget a Form 1099-R showing how much was paid to you during the year.What if it wasn't such a good yearfinancially? Let's say you were out of work for a while and collectedunemployment. Sorry, but unemployment is taxable. You'll get a separateForm 1099-G for this, so it needs to go into your filing preparationpackage.Tax trimming starts at homeOK, you know what informationyou'll need to report your income. Nowit's time to do the pre-filing preparation that could help you trim thetaxable amount.Costs related to your home are a goodplace to start.Homeownersknow the value of a mortgage. Not only does the loan get you into yourhouse, but the interest you pay on it is deductible. Your lender willsend you a Form 1098 with this amount. You can check out your loanamortization schedule and get an idea of just what the deductibleinterest amount will be.
Ifyou made an extra mortgage payment at the end of last year to up thatinterest amount, make sure it's counted. Sometimes lenders useautomatic reporting programs that overlook extra payments. You canstill claim the extra interest; just make sure you document it in casethe IRS follows up.Mortgageinterest isn't limited to your primary residence. If you have avacation 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 ona home equity loan. Your year-end loan account statement will tell youhow much this was, and in most cases it's deductible on your Schedule A, too.Using taxes to reduce taxesHomeowners get another way toreduce what they pay to Uncle Sam -- using the real estate taxes theypay as a deduction.Ifpart of your mortgage payment each month includes an escrow amountthat's used to pay annual real estate taxes, then the 1098 form you getfrom your lender also will tell you this amount. Thenthere are any state and local income taxes you paid. Check your W-2 forthis information, and be sure to deduct it, too.Don'town a house? Don't despair. There's still a tax deduction opportunityfor you if your state or county charges a personal property tax. Mostoften, this tax is on autos, so if you pay, make sure the collectingtax agency sends you a statement showing how much so you can put it onyour Schedule A.
Work expenses can cut your taxesDidyou look for a new job this year? Kept your job, but had to shell outfor work-related items and never got paid back? Move to take a new job?Allof these situations can help reduce your tax bill, as long as you'vegot the documentation. In the case of job searches, find those receiptsfor anything related to your hunt -- as long as you're looking for workin the same field. Ifyou kept your current job, but had to pay for some items that your bossdidn't reimburse you for -- travel expenses, uniforms, union dues,subscriptions -- then these can be deducted as miscellaneous items onSchedule A. Again, you'll need the receipts, so go through yourpaperwork collection carefully.Good works, good records, good tax breakGooddeeds can be their own reward; they also can reward you at tax time. Cashdonations to qualified charities can be deducted, and you should get anote 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'llalso need that receipt you got when you dropped those clothes and booksoff at the local Goodwill collection center to claim a deduction. Andthanks to a new law, you also better make sure that the articles werein good or better shape. The IRS now can deny deductions for anythingthat it deems of "minimal monetary value." So no giving away threadbaresweaters that really should go in the trash and then writing the giftoff.
But you can still get credit if youvolunteered at the local soup kitchen. No, you can't deduct the valueof your time, but if you drove there, then you can deduct your mileageat 14 cents per mile as a charitable gift. Documentation of your effortcan be as easy as a notation in your calendar of the days you workedand where the shelter is located. Accuratetaxes require accurate informationNow that you know what data you'll need to file your taxes you've takena big first step in the process.Byknowing what information you need, digging out those documents now andkeeping track of all the tax-related account statements you'vereceived, you'll immediately realize if you're missing anything or ifsomething needs to be corrected. Ineither case, you still have plenty of time to track down the properdocumentation -- saving you time, anxiety and possibly money when youfile your return.Bankrate.comis the Web's leading aggregator of information on financial productsincluding mortgages, credit cards, new and used automobile loans, moneymarket accounts, certificates of deposit, checking and ATM fees, homeequity loans and online banking fees. Visit Bankrate.comto get the tools and information that can help you make the bestfinancial decisions.
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