As important tax records start filling mailboxes, how can you make sure your tax preparation goes smoothly and efficiently this year?
Keep it all in one place. It seems obvious, but how often have you found yourself going through piles of paper looking for that elusive 1099 tax form or charitable deduction receipt? If you only do one thing, this is it.
Time to sort. Now that everything is all together, sort your information into the same buckets used in your tax return. At a minimum, sort the information into the basic categories below. If you have a lot of one category, sort that stack into the following sub-categories.
- Wages (W-2s)
- Business income (1099’s, K-1s)
- Interest income (1000-INT)
- Dividends (1099-DIV)
- Winnings (W-2G, 1099-G)
- Social Security
- Investments (1099-B)
- Other Income Items
- Student loan interest
- Tuition & fees deductions
- Alimony paid
- Educator expenses
- Other education expenses
- IRA contributions
- HSA/MSA contributions
- Taxes paid
- Charitable contributions
- Interest expense (mortgages)
- Medical/Dental expenses
- Investor/Other expenses
- Casualty/Theft losses
- Child & dependent care expenses
- Other credit-related expenses
- Adoption expenses
- Education expenses
- Sort income and expenses for each business activity or hobby activity or rental unit
Not sure bucket. There may be things you receive that you are not certain about needing for tax filing purposes. These items should be gathered in one place for review.
Is something missing? Pull out last year’s tax return and create a list of things you needed last year. Use this as a checklist against this year’s information. While this process will not identify new items, it will help identify missing items that qualified in prior years.
Finalize required documentation. Certain deductions require substantiation and/or logs to qualify your expense. Common areas that require this are: business mileage, charitable mileage, medical mileage, moving mileage, non-cash charitable contributions, and certain business expenses. These logs should be maintained throughout the year, but now is a good time to make sure they are complete and ready to go for tax filing.
It is very easy to overlook something given the lengthy list of taxable income items, deductions and credits. By following this process you can greatly reduce that risk.
Andrea L. Blackwelder, CFP®, ChFC, CDFA® and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.