Tax Time in America - Getting Organized
It’s that wonderful time of year again - tax filing season! I tried to make that sound exciting, but it is generally a stressful time for people. Trying to see if you have everything you need, digging around for documents, and the threat of owing the IRS are common worries. This month we will be sharing information to help educate you around taxes and tips to make this time of year a little bit less stressful.
Let’s talk about getting yourself organized for filing your taxes. So much information comes in the mail throughout January and February it may be overwhelming knowing what to do with each item. Then there are receipts and situations you may run into throughout the year that you might make a mental note to “save this for tax season” and then forget about it by the end of the year. By working on an organizational system you can make sure you are filing a more accurate return and taking advantage of every deduction available to you. Your tax preparer will also thank you!
I recommend starting a file for each of the following major topics below. This can be an actual physical file or a digital file. Once you have a folder for each of the topics as you have things happen throughout the year you can just stick the paystub, receipt, or note in the file. Ideally you will set this up January 1st so that by the time the year ends you are already set and organized. Right now you are preparing for a year that has passed, but you can still use this system to get yourself organized with last year's information so that your tax return process is simpler. Folder categories and what type of information is included in that category are listed below.
Income: This file will be for all items related to any sources of income or money you are receiving. This includes:
Wages
Interest
Dividends
Capital Gains
Unemployment
Retirement Account Withdrawals
Pension Payments
Social Security
Gambling Winnings
Any other money received, if in doubt make a note to ask your professional.
Above the Line Deductions: These are things that will reduce your taxable income and you don’t have to itemize to be able to deduct.
Educator Expenses - For K-12 educators you can deduct up to $250 for classroom supplies and other required expenses.
Health Savings Account (HSA) contributions
IRA, SIMPLE, SEP contributions
Self Employed Health Insurance
Alimony
Student Loan Interest
Itemized Deductions: These are deductions that you add together, if the amount of the total is more than the standard deduction you can subtract the total from your taxable income.
Medical expenses
Real Estate Taxes
Personal Property Taxes
Sales Tax on large purchases
Mortgage Interest
Charitable Donations
Gambling Losses (to offset winnings)
Other Miscellaneous Items: This folder should contain information to support additional credits or any other miscellaneous information that may fit in a different category. Examples include:
College expenses
Childcare payments
Energy Qualified Home Improvements
Anything else that you have a question about
Business, Farm, or Rental: These require more extensive bookkeeping and you should keep separate detailed files for these types of activities.