Tax season starts Jan. 28, and many taxpayers are itching to get their tax returns prepared and filed as soon as possible. With the promise of new tax laws potentially leading to larger refunds, cash-strapped Americans want to get those checks in the mail -- or deposited directly into their bank accounts -- as quickly as possible.
But even if you like being a first mover on the tax-preparation front, there is such a thing as being too early. If you don't have the following five documents, then trying to file your return can be dangerous, potentially leading to errors that could force you to go to the trouble of filing an amended return later on. Let's look more closely at these documents and the vital information they contain.
1. The new 1040 tax form
The most important document you'll need in order to file your tax return is, well, the tax return itself. If you're used to filing on Forms 1040A or 1040EZ, however, you're in for a shock: Starting with the 2018 tax year, everyone now has to use Form 1040.
That's not as bad as it might sound. The IRS has revamped the 1040 form to make it simpler to use. The main form is only 23 lines long, making it just a bit longer than the old 1040EZ and much shorter than the previous 1040A and 1040 forms. Many taxpayers will need to attach additional schedules, however, in order to provide all the necessary information and calculate the appropriate numbers to report on the main 1040.
If you're using tax software and planning to file electronically, then your provider will handle getting everything into the correct format. For paper filers, though, you'll need to have the new forms in hand before you file.
2. Your W-2 form from work
The most common must-have tax form is the W-2 form. If you're an employee, your employer has to send this form to you by Jan. 31. It has key information you'll need for your return including taxable income, along with the amount of money withheld for federal and state taxes, Social Security and Medicare taxes, and voluntary reductions for items like employer-provided health insurance, 401(k) plan contributions, and flexible spending accounts.
It's true that you might be able to get much of this information from pay stubs or other sources. However, because the W-2 has the numbers that go directly to the IRS, any mismatch can trigger an IRS review or even an audit. For that reason, it's best to wait until you have your W-2 in hand rather than risk getting a number wrong.
3. 1099 forms from investments and other income sources
Most other sources of taxable income report on various 1099 forms. For instance, banks send a 1099-INT for interest income, and brokers use 1099-DIV to report dividends and 1099-B to report proceeds of selling investments and estimates of capital gains or losses. Many side gigs treat workers as independent contractors, reporting compensation on 1099-MISC. A host of other forms cover different types of income, such as 1099-R for retirement plan withdrawals.
Copies of 1099s go to the IRS, so it's important that your return match up with what shows up on the 1099. It's especially important if you have taxes withheld from the income you receive from these sources, because the 1099 should tell you how much to add to the line on your return, indicating how much tax you've already paid.
4. 1098 forms from mortgage providers and other lenders
On the deduction side of the equation, most major sources of deductions report key tax numbers on Form 1098. That includes mortgage lenders on the regular 1098 form, as well as Form 1098-T for college and university students looking to take advantage of educational tax credits. Those paying interest on student loans can expect a 1098-E that shows the amount of interest paid.
These forms all have numbers you can transplant directly onto various schedules on your 1040 to claim valuable credits and deductions. To make sure you get the amounts right, it's useful to wait until the 1098s come in.
5. Your final bank and credit card statements for 2018
Lastly, many deductible expenses won't come with tax forms, so you'll have to document them yourself. To do so, it's invaluable to have records showing when and how much you paid, and your bank account and credit card statements can be especially useful in showing the exact amounts involved.
Keep in mind that often it's smart to retain the actual receipts rather than relying on financial statements. However, for return preparation purposes, it's usually good enough to have an accurate record of the numbers, and statements give you an easy place to put all this information together in a single place.
It can be tough to wait to file your return when you expect to get a refund back from the IRS. But filing before you have all of the essential information to do your return correctly isn't smart. As hard as it is, it's better to wait until you have the right numbers than to guess and wind up making what could be a costly error.