Regardless of whether you prepare your own tax return or hire a professional to do it for you, you are still responsible for collecting the information necessary to complete it. Well-organized records can make the process significantly easier and potentially save money with your CPA who typically charges by the hour.
One way to tackle this chore is to create a checklist of the documents and information needed to complete your return. As you gather the documents, start to organize them in a file by the following categories and check them off the list.
Prior Year’s Tax Return
Use last year’s tax return as a starting point to create your checklist. Although you may have new sources of income or different deductible expenses for the current year, this is usually a fairly comprehensive list of needed documents such as Form 1099 or 1098. It will also serve as a reminder of information you may need to determine from bank statements or receipts such as medical expenses.
Sources of Income
This category generally includes wages, dividends, interest, partnership distributions, retirement and rental income. You may receive a Form W-2, 1099, or K1 that indicates the amount of income reported to the IRS. For other types of income, such as alimony received, you may need to determine the amount to report from bank statements.
Adjustments to Income
These are direct reductions to taxable income that commonly include deductible IRA contributions, alimony paid, Health Savings Account (HSA) contributions, SEP, SIMPLE or other self-employed pension plan contributions, and self-employed health insurance payment records.
If you itemize deductions rather than taking the standard deduction, you may need to collect source documents indicating the amount of mortgage interest paid (Form 1098), real estate and personal property taxes paid, medical expenses, and charitable contributions to be reported on Schedule A.
Tax credits are a direct reduction of your tax bill so take a few minutes to research available 2017 credits. You may be able to claim the American Opportunity Credit if you have a child in college or a Residential Energy Credit if you have made any “green” home improvements.
Basis of Property
This is also a good time to review and update the basis of property if necessary. Home improvements made during the year may have increased the basis so collect and file those valuable receipts.
Federal and state taxes you have already paid may be found on your W-2 but if you pay quarterly estimated taxes you may need to collect records of payment.
While this is not a comprehensive list of every possible tax document needed to complete a tax return, it is a starting point from which you can develop your own, one that reflects your unique life circumstances. Start organizing now and maybe tax season won’t be your least favorite season of the year.