Getting Ready for Taxes (Again)

Once again, the annual tax season is about to begin. The IRS has announced that it will begin accepting returns on January 24th, 2022. The IRS also said that it is still behind on processing millions of prior year returns, refunds and correspondence so we can expect some on-going frustration that we will have a chance to practice patience with.

To help alleviate the stress of tax season, the following suggestions for getting ready for tax time will be beneficial whether you prepare your own tax returns or use a professional.

Look at last year’s return or the organizer your preparer sends out (not all preparers use organizers) to help you refresh your memory about what documents were used last year and might be needed again.

Gather the following documents and put them in one place, whether electronically or paper. These represent your income and deductions. Having them in one place will prevent the dreaded document hunt or help prevent missing something that should be on your return:

• New for 2021 tax year – The IRS letter 6419 outlining any advanced child tax credit payments you received. These were just sent out.
• New for 2021 tax year – The IRS letter 6475 outlining any third economic stimulus payment received. These should be going out soon.
• W-2 Forms – These should be issued by January 31 and may come in an email or paper version.
• 1099 Forms – There are a whole bunch of these but the following are most common: 1099-NEC for contract work you may have done, 1099-INT for any interest you received (totaling more than $10), 1099-DIV for any dividends you received, 1099-R for any retirement distributions you have received, 1099-Misc for rents and other income you may have received, 1099-B for your capital gains and losses, and 1099-K for credit card payments you may have received.
• Retirement Account Contributions to a traditional or ROTH IRA.
• Student Loan Interest Paid.
• Educational Expenses including 1098-T forms if you or your dependents attended a qualified institution. Also total up amounts spent on books and supplies and potentially room and board.
• Medical and Dental Expenses – Gather your out-of-pocket expenses if you had a high medical expense year and plan to itemize your deductions. Your out-of-pocket qualified medical, dental and long-term care costs that exceed 7.5% of your income are deductible as an itemized deduction.
• Charitable donation support – If you itemize, gather your charitable contribution receipts. If over $250, the charity must provide a receipt and you need that receipt in order to deduct your charitable contribution. For contributions of goods, such as those to a charitable thrift store, get a receipt as well and document the items donated and their value (what the thrift store would sell them for, not what your paid for them) and make note of it.
• Mortgage Interest and Property Tax Paid – If you itemize your deductions, gather your Form 1098 Mortgage Interest Paid. If you used an escrow account with your mortgage provider, your property tax paid should be listed on the 1098. If you paid it separately, gather your notice and the payment information.
• State and local taxes – Gather your payments for State and Local taxes if not included on your W-2. If you made large purchases during the year and paid large sales tax on the purchase, gather your support. You can itemize the larger of your sales tax paid or state and local income tax paid up to $10,000 (including property taxes paid).
• Child and Dependent Care – If you purchased child care so you could work, gather the provider information including name, address, phone number and the amount paid for each dependent to determine if you are eligible for a credit.
• Estimated Tax Payments – If you made estimate payments, gather your estimate information for your federal and State tax estimates paid.
• Business and Rental Income and Expenses – If you own a business or a rental property, prepare an income statement for your business outlining your income and expenses by category (Your preparer may charge you more if they have to create this for you.) Don’t forget to call out any large purchases or improvements that may need to be capitalized.
• Foreign Bank Accounts and Investments – If you have these accounts, gather the information on the account and institution as well as the highest balance during the year for each account.
• Additions to the Family – If you added a dependent (child or elderly parent) during the year, get their birthdates and social security number information ready.
• Home Sale Information – If you sold your home during the tax year, gather your basis information including the date you purchased it as well as the purchase price and any major improvements you made to it as well as the seller’s closing settlement statement.
• Cryptocurrency Information – If you bought, sold or owned virtual currencies, you will need to report your ownership by checking a box on your return. If you sold or exchanged any virtual currency, you will also need to report the transactions and determine if you have taxable income as a result.

To speed up your return processing and any refunds, consider electronically filing your returns and selecting direct deposit for any refunds. The IRS anticipates continued slowness on paper processing and refund check issuance.