Tomorrow, April 17th, is tax day for 2012 and for those of us who have not completed our taxes yet, here are a few tips to help you get it together.
Get it Together
Being slightly ADD, I find that having all my information in one place as I sit down to do my taxes will keep me from getting distracted. Otherwise, as I run around the house looking for information, I can certainly stumble across other things that require my immediate attention.
A list of these items also helps keep me focused. So, grab a manilla file folder and on the outside, make the following list (only the items that apply):
W-2 (Job 1)
W-2 (Job 2)
1099-G (Certain Government Payments) i.e. Unemployment
1099-Int (Bank 1)
1099-Int (Bank 2)
Form 1098 (Mortgage 1)
Form 1098-E (Student Loan Interest Paid)
Child Care Credits:
Print out of payments to Daycare/Childcare
Monetary Donation Receipts
List of Goodwill/Salvation Army drop-off/pickup with Fair Market Values)
Form 5498 (IRA Contributions)
Form 1099-R (Investment Payouts)
Receipts (if taking deductions)
Form 1099-SA (Distributions from an HS, Archer MSA, or Medicare Advantage MSA)
This is not an inclusive list. Since most people don’t have very complicated situations, this should cover most situations. If you have a business, I recommend a separate folder for those items. Heck, I recommend a Tax Consultant.
With the items listed on the outside of the folder, start collecting this information and putting it into the folder and checking them off. A series of check marks can be very satisfying.
Where to Find it
W-2’s should have been mailed to you by your employer postmarked by January 31st of the year. Many employers utilize payroll management companies that allow on-line views and prints of checks and W-2.
1099-G will be sent by the local government agency and can also be viewed on-line via the payment history.
1099-Int (Interest Earned Income) should be mailed from the banking institution and is also available though their online banking portal.
Form 1098 (Mortgage Interest Paid). If Property Taxes are escrow-ed and paid by the mortgage company, this information should also be on the Form 1098 that will be mailed by the Mortgage company. If payments can be made online, then this information should also be on their online portal.
For Child Care Credit, a printout of the money received by the Day Care Provider will be needed with the full name, address and tax Id noted. In my experience, the Day Care will only provide this information upon request. This is a very important tax credit for anyone that is paying daycare.
Donation receipts should include gifts of money made to churches and other charitable organizations. Remember that if you receive anything of value in return for your donation, then only the portion that is given above the value of the goods or service is tax deductible. Ask the organization for the fair market value of goods or service you received and deduct it from the amount you donated. Always get a receipt to support your donation.
Other donations include goods provided to organizations, such as Goodwill or the Salvation Army. Be sure to keep good records and utilize a Thrift Store value of the items you donate. And if the total of all your goods contributed values at more than $500, you have to file IRS Form 8283 with your tax return.
Here is a link to the Salvation Army Donation Value Guide to help you find a value for each item that you donate.
These can be both Income and Deductions. If you are putting money into pre-tax and even some post-tax investments, you can receive certain deductions. Discuss these with your Tax Consultant. If you are taking payouts or cashing-out your investments, then these are considered income and can be taxable or even carry penalties if you pay/cash out before you are qualified to do so. Check with your Financial Adviser or your Tax Consultant. If you have complicated investments, I recommend both a Financial Adviser and a Tax Consultant. A Financial Adviser should not be giving you tax advice.
I thought this was a great article on Investment Deductions. I was surprised by a few items on this list. Specifically, writing a check for the maintenance fees for my retirement account, rather than having it deducted from the account, allows me to deduct those fees. I may have to try that.
HSA (Heath Savings Account) are offered by some employers in conjunction with a high-deductible insurance plan. This account allows you to save pre-tax dollars to spend on your medical bills and deductibles (much like a Flexible Spending Account but you don’t forfeit your unspent money at the end of the year). It also allows you to save long term (year after year) and use the money in future years when you have a medical need. Disbursements are reported to the IRS with the Form 1099-SA and are not taxable as long as the disbursements are for medical services and goods.
Check out this page for all the benefits, qualifications and contribution limits of an HSA account.
Now that you have it all together, plugging your information into a Tax software or visiting a Tax Prep Service or dropping off with your Tax Consultant will be much easier and allow the forms preparation to go much faster.
Get Ready for Next Year
Do you really want to go through this craziness again? I didn’t think so. Right this minute, pull out another manilla (or whichever color you prefer) file folder and mark it 2012 Income Tax and put it with your other files. The next time you receive a tax document in the mail, make a drop at Goodwill, print off a receipt for a donation or a business expenditure, drop that document right into the file folder. Viola!
Are You Getting a Refund?
I really don’t want to know if you are getting a refund. Rather, ask yourself if you would rather have that money in your paycheck each month or let the government have it (interest-free) for almost a year. Some people enjoy the surprise of a refund come Spring but wouldn’t you rather have that money working for you rather than just waiting for you.
What if you took that extra money each month and put it into an interest-bearing account? You would have more money next Spring than what the government would offer you. If you want to take charge of that money, then you may want to revisit your W-4 and modify your exemptions.
This link from the IRS will help you determine the correct number of exemptions for a new W-4. After changing your exceptions and submitting it to your payroll department, remember to check your paychecks to be sure you are “on-track” to paying the same amount of taxes you paid last year (assuming all income and deductions are the same). You can change your W-4 as many times are you want, so feel free to make adjustments as needed to ensure that you are paying your fair share and no more. Otherwise, you may find yourself facing a tax bill, rather than a refund next year.
Hope this information helps you get on the ball and get your taxes done and off your plate. After all, there are more exciting things you need to be doing.
Happy Tax Day!