Another year has come to an end and that means it will soon be time to file your taxes. It may not be the most exciting thing that the new year brings, but it is a necessary evil nonetheless. However, tax preparation does not have to be dreadful event that most people believe it to be, so long as you are properly prepared. One of the best things you can do, and this is the same thing I ask of all of my clients, is to be organized. Not only will this help you in knowing that you have everything that is going to be needed, but it will also help the person who is preparing the tax return do so in the quickest and most efficient manner. What does that do for you? Simply put, it makes the process a heck of a lot shorter from start to finish and you will get any refund much quicker (especially when combined with e-filing and direct deposit). To make things a bit easier on you, as well as your tax preparer, here are a few simple techniques from a tax pro to get yourself ready:
- Take an envelope or folder and mark it “Tax Documents” to house all of the records you will use when filing your 1040
- Make a list of all of the interest-bearing accounts you have (including checking, savings, & certificates of deposit). Using last year’s 1040 will give you a lot of help in doing this.
- Add all of your brokerage accounts to that list
- Also include all lenders whom you paid mortgage interest to and all counties/taxing authorities to whom you paid real estate taxes to
- Make a separate list of all of the partnerships or S-corporations that you have an interest in
- Each time you receive a form K-1, 1099-Int, 1099-Div, 1099-R (Retirement disbursement statement), 1098-E, or tax statement cross off the name of the payee from the list until they are all marked as received.
- Start to gather all of the information related to stock or mutual fund sales you made during the year as many brokerages do not have records of purchase prices or dates for holdings that were transferred in from other brokerage accounts
- Get all of the information together related to any rental properties you may own: rent receipts, utility bills, mortgage statements, real estate taxes, repair invoices, insurance bills, etc.
- Pull all of the receipts you plan to use when filing your taxes, including but not limited to: charitable donations of cash or goods, unreimbursed business expenses (gas, tolls, meals, travel, supplies, etc.), education expenses (and educator expenses if you are a qualified educator), child-care costs, documented moving or job search expenses, medical expenses, medical insurance premiums, etc.
- Call any pharmacies you use and ask for an annual account summary for the year outlining all of your prescription costs.
- Pull any receipts for large purchases made during the year, which may include automobiles, appliances or other big-ticket items. You may be better suited taking your actual sales tax paid on these purchases rather than the generally calculated amount if you itemize (your tax preparer will know which one can be used)
- Keep the folder on your desk at all times as a reminder to keep organized and not to wait until the last second to bring your documents to your tax preparer to file your taxes.
Understand that this is a very generic list, and everything may not apply to your individual tax situation or you may have a much more complicated tax situation. In any case, this is just something to help get you started on the right path in filing your tax return, and not making the mistakes that many taxpayers make: waiting until the last second to file, or not being prepared and losing out on deductions due to missing or incomplete information from lack of planning and organization. While you may benefit by requesting an extension to the filing deadline, keep in mind that you will still be responsible to pay interest on any tax liability you may have when everything is said and done.
In what ways do you get everything orderly for having your tax return prepared? Or, do you just hand over a box/folder/stack of papers and have your tax preparer sort through everything?