Every new year brings a little bit of optimism about the upcoming months. Vacations and graduations are just a few months away; but, there is another big job that requires attention: tax preparation. In today's complex world, there are numerous pieces of paperwork that need organizing before you can even begin to fill out a tax form. Everything from income statements to charitable contributions need to be sorted and stacked. Where to begin, you may ask? Some helpful suggestions will help you during your tax preparation period for a fast and accurate filing.
The most basic tax preparation revolves around collecting all of your income statements. W-2s report all of your earnings for the year, as well as all the tax deductions. Did you have any interest income from savings or other interest accruing accounts? Any dividends should also be reported on an income statement. The IRS stipulates that all these forms should be mailed to each person by January 31; make sure to check the mailbox periodically during tax season.
Any donations made throughout the year need to have a receipt for proof of giving; the IRS will not accept deductions that do not have any documentation, such as giving to a collection plate at a religious function. Proper tax preparation involves organization; place the receipts in a file folder or shoe box (if you have an excessive amount of receipts). You should look over the receipts as well to make sure they are legible and not faded. Printed receipts can fade over time so it may be a good idea to scan the papers into a computer program to preserve the type.
Do you have a mortgage? If so, you have a large deduction to make from the interest and property taxes. Paper statements can be downloaded from some lenders’ websites, whereas others will still send you a physical paper copy. In addition, any home improvements, such as adding solar panels to the roof, can typically be deducted under new tax laws; each tax year is different so you should consult the IRS’ website for specific deduction rules. Overall, the government is trying to reward homeowners for using clean energy alternatives.
If you had excessive out-of-pocket medical expenses during the tax year, it may be possible to deduct a portion of the costs on your tax return. You should collect all of your medical bills and proof of payment, like cancelled checks; organize them by date and by patient, if it is a joint return. Medical costs can add up over the course of a year so make sure to check current IRS laws for the best deduction choice.
If you returned to school this tax year, it is good practice to keep all receipts for tuition, books, and parking. Most, if not all, of these expenses can be deducted, based on the current IRS laws. Even the smallest transaction, like a test form, can usually be deducted.
Tax preparation may seem like a daunting task, but it is all about organization. Start preparing early for an easy filing process and you can reap the rewards of a large tax refund.