It’s that time of year again! Make tax preparation less painful by getting your documents in order.
Step 1: Get set up Clear off a nice big table, and gather any financial statements and receipts that may be even remotely relevant. Be sure you have all the materials that were mailed to you after January 1st in envelopes marked 'Important Tax Document Enclosed.'
Step 2: Identify income Pull out your income data, which for most people means an employer-provided W-2 form. Independent contractors and the self-employed will likely have 1099’s. Relevant documentation for bank interest, asset sales, and any other money you made this year should also go in this first pile.
TIP: If you’re missing any income statements, go to www.irs.gov for information on how to retrieve them.
Step 3: Separate interest If you have made payments on a student loan or mortgage, find the 1098 forms sent to you by your lender and put them in a second pile.
Step 4: Gather deductions Collect every receipt that represents a possible deduction, such as charitable donations, alimony payments, medical bills, taxes paid, and un-reimbursed job expenses. Divide the job expenses into the sub-groups of travel, entertainment, home office, supplies, and other. This is pile number three.
TIP: The IRS has very specific regulations regarding write-offs. Consult a professional for advice or research the rules before filing your return.
Step 5: Sort out child-related deductions Sort out any expenses related to children, such as child care costs and tuition and make this pile number four. Add any other expenses that might entitle you to a tax credit, such as the purchase of an energy-efficient appliance.
Step 6: Clip the piles Bind the piles and sub-groups together with paper clips and place everything in one nice, neat folder. Doing your taxes seems a little less daunting now, no?
FACT: Americans spend over 6.6 billion hours preparing their taxes each year.