With tax season now in full swing, if you've yet to get started on your upcoming return, let this serve as your official wakeup call. Here are four things you must have on hand to file your taxes accurately.
1. Your W-2
If you're a salaried employee, you should receive a W-2 from your employer listing your annual wages and the amount of tax withheld from your paycheck. Employers are required to send out W-2s no later than January 31, so if you're missing one at this point, it pays to follow up immediately. In fact, if you're submitting a paper return, you'll need to attach a physical copy of your W-2 and send it to the IRS.
2. Your 1099s
Any time you earn money outside of your regular salary, you're required to report that income to the IRS and pay your share of taxes on it. And that's where 1099s come into play. Some of the most common types of 1099 forms include:
- 1099-MISC, which is used to report miscellaneous income for independent contractors who earn more than $600 from a single company
- 1099-INT, which is used to report interest income
- 1099-DIV, which is used to report dividend income
Though you're not required to attach copies of your 1099s to your tax return (even if you file on paper), you should know that any time you receive a 1099, the IRS gets a copy as well. It's important to report your outside income in full to avoid getting flagged for a tax audit.
3. Spending records for claiming deductions
As a taxpayer, there are a host of deductions you may be eligible for, but you'll need accurate records to back up your claims. Guessing at deductions is a good way to secure a spot on the IRS audit list, so before you sit down to file your return, take the time to assemble the right documentation. A large number of taxpayers will need the following on hand:
- Mortgage interest statements
- Property tax bills
- Records of charitable contributions, including receipts for non-cash donations
- Out-of-pocket medical expenses for the year
Keep in mind that for some of the above, you won't necessarily get an official tax form or statement in the mail. While your mortgage company, for example, should send you a statement summarizing your payments for the year, you'll need to consult your own records to see how much you paid for medical care. If you don't have this information easily accessible, comb through your bank statements and credit card bills to arrive at a precise number.
4. The right tax preparation software
There's a reason most people file their taxes electronically these days. Not only is it faster and easier, but if you file on paper, you're 21 times more likely to make a mistake that could cause your return to get audited or rejected. Furthermore, if you're due a refund, you'll get it much faster by filing electronically.
Now if you earn less than $64,000 a year, here's some good news: You can use the IRS's Free File Software to prepare and submit your return at no cost. If you're not eligible to file for free using the IRS's software, there are other free federal and state programs available, as my colleague Selena Maranjian points out. Even if you do have to pay for software, it'll probably be considerably cheaper than hiring a tax preparer, and since most programs are designed to help you identify credits, deductions, and audit-triggering activities, they can be equally useful at a fraction of the cost.
Remember, though the tax filing deadline is still a good month away, it's never too early to get moving on your return. If you're due a refund, submitting a return early will help you get your hands on that cash sooner. Just as importantly, if it turns out you owe the IRS money, it'll buy you some time to come up with a game plan for paying that bill.