Income Tax Organization
“Nothing is certain except death and taxes.”- Benjamin Franklin
January 27 marked the official start of tax season. The process of gathering all your tax records can be overwhelming and stressful every year, resulting in incorrect income taxes or late filings.
You can decrease your stress and ensure the accuracy of your tax return by working from a tax checklist. Customized checklists eliminate the need to work from memory and prevent you from reinventing the wheel every year. Organize your checklist into buckets or sections to make it easier to identify all the pieces that need.
Section 1: Personal information. Each filer and dependents need to provide the following information on their tax returns:
- Names to be included on tax return
- Social Security number
- Birth dates
- Divorce, Marriage, and Death dates
Section 2: Income. Wages, compensation, retirement plan withdrawals, real estate sales, interest received from savings, investment income, etc., are included here. If you are unsure about what to expect, create an account at https://www.irs.gov/your-account to view what has been reported under your name.
These are some of the most common tax documents you may receive, but they do not include all.
- If you are employed, your employer will issue you a W-2 by the end of January, summarizing your earnings and tax withholdings. Gambling winnings will be reported on a W-2G form.
- The 1099 form documents income you receive outside of employment. It includes money earned from gig work, interest, real estate sales, and distributions from tax leveraged accounts. Every year, any organization or individual that paid you must send this tax form by January 31. There are 22 types of 1099s.
Section 3: Deductions. To lower your tax liability, you subtract an amount from your income. With the help of this section, you can organize your financial information so that you can determine whether to take the standard deduction or itemize based on your filing status.
- Itemize Deduction Expenses:
- Donations to charity
- Home mortgage interest
- Income, sales, real estate and personal property taxes
- Medical and dental expenses over 7.5% of your adjusted gross income
- Losses from disasters and theft
It is also possible to deduct other expenses, regardless of whether you take the standard deduction or itemize. For some tax deductions, a tax form will be provided, while for others, receipts and supporting documents must be provided. Visit https://www.irs.gov/credits-and-eductions -for-individuals for a complete list and details.
- Deductible Expenses whether you take the standard deduction or itemize:
- Business use of your car
- Money you put in an IRA or Health Savings Account
- Student loan interest
- Teacher expenses
Section 4: Credits. Tax credits are amounts deducted from taxes owed. The result can be a lower tax payment or a larger refund. There are some credits that are refundable, which means that they can give you money back even if you do not owe any taxes. Visit https://www.irs.gov/credits-and-eductions -for-individuals for a complete list and details.
- Income Tax Credits.
- Earned Income Tax Credit
- Childcare Expenses
- Adoption Credit
- Child Tax Credit
- Education Credit
- Saver’s Credit
- Clean Vehicles or Clean Home Energy Credit
- Personal Tax Credit
In addition to using a checklist every year, take proactive steps such as establishing a record-keeping system, separating personal and business finances, establishing a routine for record keeping, planning ahead for tax deductions, and seek professional assistance as needed. With proper organization, tax season will become more manageable and less daunting.
The approach of Tax Day highlights the importance of not only meeting this year's deadlines, but also preparing for smoother future tax seasons. By organizing your financial records systematically throughout the year, you can streamline tax preparation and ensure accuracy.
Joy Miller, Family and Consumer Science Wellness Agent, 2024