7 Ways To Get Organized For The Tax Year - Spokane, North Idaho News & Weather KHQ.com

7 Ways To Get Organized For The Tax Year

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NBCNEWS.COM - Even if your tax situation isn't complicated, there's still documentation the Internal Revenue Service demands. But filing taxes 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.

The key to a successful tax form is proper reporting. The IRS wants to know how much money you made so it can tax it. You need to know what you can put on your Form 1040 that will help you trim your tax bill.

To help you organize your tax paperwork so that you and the IRS will be happy, let's look at seven ways to help you get organized.

Filing by the (identification) numbers
The IRS tracks every taxpayer through a Social Security number. When you file your own returns, this isn't a problem. But if you drop all your data off at your accountant's office, make sure your Social Security number is in there, as well as your spouse's if you file jointly.

Don't forget the ID numbers of your dependents. You'll need those numbers, too. This includes everyone you claim, from elderly parents to infants. If your kids don't have their numbers yet, contact the Social Security Administration immediately. And don't forget the tax identification number of the person or business that takes care of the children while you're at work. You'll need it if you file for the child care credit.

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 tax refund or disallow a tax credit if you don't have the identification numbers to support it.

It is called an income tax
Because it's our income that the tax man wants a piece of, start thinking about the employment and income data you'll need to file.

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

If you're an independent contractor, the company you worked for should send you a Form 1099-MISC showing your gross earnings.

When 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 earning that the IRS taxes. Are you saving money for your child's college, a new house or retirement? Good for you -- and the tax man. Interest earned on most savings accounts is taxable.

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

Interest earnings are typically documented on 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 a broker, will be sent to you on a Form 1099-B.

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

Tax trimming starts at home
Now it's time to do the pre-filing preparation that could help you trim your taxable income. 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, the interest you pay on it is tax deductible. Your lender will send you a Form 1098 with this amount. If you made an extra mortgage payment at the end of last year, make sure that added interest payment is counted.

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 it is just as deductible. And don't forget the interest you paid on a home equity loan. 

Using taxes to reduce taxes
Homeowners get another way to reduce what they pay Uncle Sam: claiming real estate taxes as a tax deduction.

If part of your mortgage payment each month includes an escrow amount that's used to pay annual real estate taxes, then the Form 1098 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 those, 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.

Good deeds, good records, good tax break
Good deeds can be their own reward. They also can reward you at tax time.

When you give cash to a qualified charity, get a note from the group acknowledging your gift if it was $250 or more. If your donation was smaller, you don't need a formal receipt, but you will need some sort of documentation, such as a canceled check or bank or credit card statement, in case the IRS later has any questions.

Are you dropping off clothes and household items at a local collection center? Get a receipt for those. And make sure that the articles were in good shape. The IRS can deny deductions for anything that it deems of "minimal monetary value." In tax speak, that means you can't donate trash and then write it off.

You also can get a tax break for volunteering. You can't deduct the value of your time, but you can deduct 14 cents for each mile you drove to help the group. Documentation of your effort can be as easy as a mileage notation on your calendar on the days you worked.

Accurate, organized info means easier filing
Now that you know what data you'll need to file your taxes and the info that can help reduce that bill, you've taken a big filing first step.

Now you'll be able to find the tax documents you need and keep track of all the tax-related statements you'll receive. And you'll immediately realize if you're missing anything or if something needs to be corrected.

Even better, by getting organized early you give yourself plenty of time to complete filing taxes properly, saving you time, anxiety and in many instances money.

 

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