Three New (Tax) Year’s Resolutions You Must Keep

Untitled design(3)If you’re creating your New Year’s resolutions, don’t forget to include resolutions for the new tax year. Getting off to a solid start with organization and sound tax planning practices will save you serious headaches at this time next year. Here are three New (Tax) Year’s resolutions to keep in mind as 2016 approaches.

1. Get organized

Now is the time to set up a filing and/or record-keeping system for all of your tax documentation, especially if you plan on itemizing your deductions in 2016, or are self-employed.

Keep all of your receipts and paperwork in one location, and set up a filing system that works best for you. Set aside a filing cabinet or folder if keeping papers copies of documents is more your style, or set up electronic folders if you plan on scanning your income documents.

If you are self-employed or have a side gig or tip income, set up a spreadsheet for recording your tips and miscellaneous income. Set up another spreadsheet for your expenses, and update it as the year progresses.

You will be able to refer to all of your records quickly when tax season rolls around next year.

2. File early

No one likes the idea of filing their taxes, but if you plan to file early, you can correct any errors you might find on your tax forms, such as your W2 or 1099 forms. Make sure these forms have your current address, and that your name and social security number are correct. By planning ahead of time, you can allow for the extra time should you need to have any of these forms corrected…no last-minute hassles.

Another benefit to filing early: you’ll get your refund earlier. As an early filer, you’ll also experience a quicker turn-around in processing and mailing your refund.

By filing early, you’ll also be less at risk for identity theft. The longer you wait, the more opportunity identity thieves have to file a fraudulent return in your name.

3. File for an extension

If you’re facing the Tax Year of Doom and the mountains of paperwork that goes along with it, consider filing for an extension. This is especially true if there are tax documents that will be delayed for any reason. If you know for certain that you will not be ready on tax day, filing an extension will relieve much of that tax-day stress.

An extension could buy you the extra time you need to get your tax documents in order and to receive documents that have been delayed for any reason (e.g. financial records related to a divorce, sale of property, trust or an estate). Your extension will expire on Oct. 15.

Tomorrow: Even more New(Tax) Year’s resolutions

It’s December. Do You Know Where Your Tax Paperwork Is?

 

Photo: Ladyheart/morguefile
Photo: Ladyheart/morguefile

The tax year is winding down, and if you’re hoping to get a jump on the April 15th deadline by filing early, organization is key.

Now is a great time to gather all of your paperwork and organize it for easy reference on tax day. Getting organized ahead of time will save you time and energy when it comes time to file your taxes. Here’s a list of some of the things you’ll need:

If you work for an employer:

  • Paystubs and W2 forms. Employers have until January 31st to issue your W2. Once you receive it, compare the figures with the figures on your year-end pay stub. If there are any discrepancies, be sure to contact your employer’s payroll department or bookkeeper. You’ll want to clear up any issues long before your file your return.
  • Proof of 401k/IRA contributions. These figures will typically show on your paystub each pay period. If not, the plan administrator will typically issue a year-end statement as proof of contribution.
  • Your paystub will also show proof of contribution to any employer-sponsored HSA.

If you freelance or have side gigs in addition to W2 earnings:

  • Records of all tip income
  • Records of all your income and expenses for the year, along with receipts verifying those figures
  • If you earn more than $600.00 from any one client, they will issue a 1099-MISC by January 31. If you have not received your 1099-Misc by mid-January, follow up with the client. You will need the form in order to file your taxes.
  • You’ll need to report ALL income, regardless of how much you earn from a specific client.
  • Mileage records if you used your car in the course of conducting business, such as driving for Uber or driving to and from client meetings, medical appointments, and/or volunteer gigs.

If you’ll be itemizing your deductions:

  • For child/elder care: copies of all receipts and payments made to care providers.
  • If you hired a nanny or babysitter who earned more than $600.00, you’ll need to issue a 1099-Misc. form.
  • Charitable contributions: copies of all receipts. If you made donations to a qualified non-profit, they will typically issue a donor acknowledgement letter either at the time of donation or at the end of the year.
  • Copies of receipts for any goods donated. The charity will typically issue a receipt at the time of donation, and you’ll be responsible for declaring the Fair Market Value of the donated items.
  • For medical/dental: Copies of receipts verifying co-payments or other out-of-pocket expenses
  • Copies of mileage records to and from appointments
  • Copies of receipts for any medically-necessary mobility devices, home modifications, or vehicle modifications
  • For homeowners: Copies of the 1098 Mortgage Statement issued by the lender or servicer
  • Records for any repairs, rental expenses, insurance, or disaster-related repairs
  • Receipts for uniform expenses if a uniform is required for work, but not reimbursed by your employer

If this is the first year you’re either filing your own return or claiming itemized deductions, now is a good time to check in with a tax pro who can assess your unique tax scenario and advise you on exactly which documents you’ll need.

Getting ready for tax day is all about keeping organized records. If your paperwork is spread out among various shoeboxes, drawers, or some random spot you can’t remember, now is a good time to dig them out and organize them into one central file.

You’ll be glad you did come tax day.

How Long Do I Need to Keep This Anyway? When To Toss Your Tax Documentation

Tax Returns

If you’re de-cluttering at home or work and come across a stack of past years’ tax returns, your first instinct would be to shred them. After all, who doesn’t like a clean, organized file cabinet? Before you bust out the shredder, here are a few guidelines to keep in mind regarding your tax paperwork.

Three Years

The IRS has a three-year window in which they can select your tax return for an audit, so the safest thing to do is to keep your tax records for at least three years. Here are some forms that should be kept with your tax return:

  • Your 1040 with all schedules, along with any receipts supporting your itemized deductions.
  • Income forms such as W2 and 1099 forms
  • Bank statements, K-1 forms, asset statements such as stocks and bonds
  • Sales receipts for any asset you sold during that tax year.

Since your 1040 form and income forms contain your social security number and other sensitive information, keep your tax records in a secure spot in your home.

If you filed your tax returns online, print out and keep a hard copy. In most cases, it’s best to hang onto your tax return copies indefinitely, especially if you bought or sold assets (stocks/bonds) or real estate.

If you filed a more complex tax return (business, estate or partnership returns for example) you should keep them for up to seven years, particularly if you’re self-employed. Same goes for any supporting documentation for those returns.

Unfortunately, the IRS tends to scrutinize small businesses more closely and tax returns with the Schedule C (self-employment attachment) tend to be more vulnerable to an audit.

Some Exceptions

If the IRS has reason to believe that you have filed a fraudulent return, they can follow up at any time; there is no statute of limitations.

If the IRS also has reason to suspect you deliberately under-reported your earnings by 25 percent or more, they will come calling regardless of how many years have passed.

In other words, play fair and chances are the IRS will leave you alone.

In any case, if you’re not sure how long you should keep your tax records, check with a qualified tax pro who can answer your questions.

Each tax scenario is different, so if you’re purging old paperwork in the name of getting organized, be sure the check with a qualified tax professional before shredding any old returns and supporting records; Googling isn’t enough in some cases.

When in doubt, consult a tax pro who can help you address the sometimes complicated question of “How long do I need to keep this, anyway?”