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5 Things You Need to Have in Hand to Do Your Taxes

By Selena Maranjian – Updated Apr 3, 2017 at 3:57PM

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Gathering what you'll need for taxes ahead of time can make your tax-return preparation go smoothly.

I am proud to be paying taxes in the United States. The only thing is -- I could be just as proud for half the money. -- Arthur Godfrey 

Most of us would prefer to pay half as much in taxes to Uncle Sam each year. Getting savvier about our tax code and taking advantage of as many deductions and credits as you can may help you shave thousands of dollars off your tax bill -- though it's still not likely to halve it. For the best results when preparing your tax return, be sure you have everything you need.

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Here are five things you'll need in order to prepare your tax return.

1. Tax forms

The IRS is all about forms. You can find and print out just about any tax form at the IRS website, but if, like many people, you're preparing your tax return on your computer, you won't need the paper forms. You'll either fill forms out online or a software program will prompt you for information that it will fill in for you. Filing your taxes online is a good way to get your refund faster.

2. Personal and family information

You'll need your Social Security number or tax ID number -- and those of your spouse and any dependents, as well. You'll also need everyone's birth dates. If you paid for any child care during the year, you'll need records of that, including the tax ID number of the care provider.

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3. Documentation of your income

You'll need to account for all the income you collected during the tax year, so get those records and forms in hand. If you're employed, you'll need your W-2 forms for the tax year. If you're unemployed, you may have unemployment income to report, which is documented on a 1099-G form your state will send you.

If you're self-employed, your tax life will likely be more complicated. You may have a 1099-MISC or several, K-1 schedules, and other records of your income. You also may have income from sources that aren't sending you official tax forms, but which you're still required to report -- so be sure to keep good records throughout the year. If you've made estimated tax payments throughout the year, you'll need those records, too.

If you have investment property, you may have rental income to report (plus rental-related expenses). You'll also need information on your rental property, such as its cost, depreciation, when it was placed in service, etc.

Retirement income such as from a pension, IRA, or annuity appears on 1099-R forms, while Social Security income is reported on a 1099-SSA. (Railroad Retirement Board income gets its own form -- 1099-RRB.) Investors will need to report any dividends or interest received (via forms 1099-DIV and 1099-INT, respectively) as well as any income from stock sales or real estate sales (forms 1099-B and 1099-S, respectively). For assets you sell, you'll need to know when you bought them and what your cost basis was (if that's not reflected on a 1099-B) so that you can calculate your capital gains or losses. If you received disbursements from a Health Savings Account (HSA) or long-term care, you'll need a 1099-SA or a 1099-LTC.

Of course, those are hardly your only possible sources of income. Among the others are gambling winnings (often reported on a W-2G form), hobby income, royalties, alimony, and prizes or awards. You should be prepared to report any of these that apply to you, so keep good records throughout the year.

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4. Documentation of your expenses

To shrink your tax bill, you'll want to take as many deductions and credits as you can. Here are some of the main categories of expenses for which you might want to keep records throughout the year, and the kinds of documents you might need to have, come tax-prep time. (Note that not every expense in every category will qualify for a tax break -- each deduction has its own rules.)

  • Home: You'll want your mortgage interest statements (Form 1098) on hand, as well as other home-related expenses such as property taxes paid and receipts for energy-saving home improvements.

  • Car: Keep a record of any car taxes paid.

  • Medical expenses: Keep track of what you pay for doctors, dentists, hospitals, lab work, drugs, and more. All kinds of expenses might qualify, such as crutches, hearing aids, therapist sessions, and weight-loss programs. Note that expenses paid for through a flexible spending account (FSA) or an HSA can't be deducted, as the deposits into those accounts were already made with pre-tax money.

  • Health insurance: You'll need Form 1095-A if you were enrolled in a plan through a health insurance marketplace or exchange. Forms 1095-B and 1095-C apply if you got health coverage from another source, such as your employer or a government plan.

  • Donations: You'll need receipts or cancelled checks with the date and amount of any cash (or check or credit card) donations made for less than $250. Donations of $250 or more will require a written record of the donation from the organization. (These days, many charities send you end-of-the-year summaries of your giving, to assist with your taxes.) Donations of items can generate deductions, too. You'll want to know the fair market value of what you donated, and will need receipts. 
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  • Children: Keep track of child care expenses you incur (though not ones paid for through an FSA -- again, you already got your tax break when the money went in) -- as well as any expenses related to the adoption of a child.

  • Dependents: Keep records of expenses related to non-child dependents, such as older parents. 

  • Education: Know how much you spent on expenses that may qualify for education tax breaks. If you paid tuition to a college or university, you should receive a 1098-T form. If you paid interest on a student loan, that will be reported on a 1098-E form. If you received any scholarships or fellowships, have records of those, too.

  • Investments: You can deduct margin interest paid, and you may be able to deduct the cost of subscriptions to investment periodicals or services, and fees paid to money managers or financial advisors.

  • Taxes: Know how much you paid in state and local income tax (in excess of what was withheld in your paycheck) or state and local sales tax, as you can deduct either. (Remember property taxes and car taxes, too, which were mentioned above.) Tax-preparation fees are deductible, too, if you've hired a tax pro.

  • Tax-advantaged accounts: If you made contributions to an HSA, you'll need a Form 5498-SA, documenting that. Form 5498 will reflect contributions made to an IRA for retirement savings. 

  • Job and business: If you have business expenses, especially if you're self-employed, keep good records of them. If you're taking the home-office deduction, have records of home-related expenses such as utilities -- you may be able to deduct a portion of those too. If you use your car for business, keep records of miles driven, repair costs, tolls, fuel, and so on. Some job-hunting expenses are also deductible, as are moving costs if you move for work and meet various criteria. If you're a teacher and spend out of your own pocket on classroom materials, keep track of those purchases.
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5. A tax pro -- or software

Something else you might need in order to prepare your tax return is a tax professional -- or tax-prep software. You might not like the idea of paying someone to help with your tax strategizing and tax-return preparation, but it can be well worth the cost. A good tax pro will know far more about the tax code than you do, and may be able to lower your tax bill while suggesting effective strategies for you.

But don't just hire anyone. Ask around for recommendations. Consider hiring an "enrolled agent," a tax pro licensed by the IRS who is authorized to represent you before the IRS if need be. You can find one through the National Association of Enrolled Agents website. However, if your financial situation isn't too complicated, a tax-prep software package will cost a lot less and should do a good job.

There are other things you might need to prepare your taxes, too -- such as a pencil, some aspirin, and a calculator. And one last terrific thing to have is a solid understanding of basic tax rules and tax strategies. A little further reading on the subject could help you shrink your tax bill even further.

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