More than 160 million tax returns for the 2020 tax season have been filed. As Ben Franklin once noted, the only certain things in life are death and taxes.
While nobody enjoys doing their taxes, it can become a lot more frustrating when you file incorrectly. When you file your taxes correctly, you expedite the whole process and can go to sleep at night with peace of mind.
If you file incorrectly, you may end up having to file again or even have to pay a fine, or worse. Luckily for you, we’re here to help. So keep on reading and we’ll take you through everything you’ll want to know!
Personal Information
We will start by going over the most obvious items for any tax return. First, you’re going to want your taxes from last year. This includes both federal and state returns, if applicable.
These are not strictly necessary but they are good refreshers of what you filed last year and what information you used.
You’ll also need your Social Security number, as well as the Social Security number for your spouse and all of your dependents. Remember that aside from children, elderly parents can also be considered dependents.
Income
Gather all of the papers that confirm the income that you received during the last year.
You will need your W-2 forms, which your employer needs to issue by the last day of January. So make sure to pay attention to your mailboxes, both digital and physical.
You’ll also need your 1099 forms. Each of these forms ends with a different suffix, depending on the kind of payment you are receiving. For example, form 1099-MISC is for contract employment.
If you are paid through a third party, such as Amazon or PayPal, then you will likely need to get a 1099-K. Investment earnings show up on 1099-B for broker-handled transactions, 1099-DIV for dividends, and 1099-INT for interest.
Deductions
Deductions can help you reduce your taxable income. This usually means a lower tax bill. When it comes to claiming deductions, the documentation is very important.
Not only will these documents protect you in case you are ever audited but they can help you cut down your tax bill by helping you remember what you need to claim.
It might take a lot of time for you to gather all of these records. But it’s worth the time because it can definitely pay off.
Imagine that you end up getting several hundred dollars in your tax refund. Spending the extra hour or two getting your papers in order would most definitely be worth the extra money.
You don’t need to itemize to benefit from a lot of your deductions. These are directed listed on Form 1040. Most deductions are available if you itemize your expenses on Schedule A.
Common Tax Deductions
Let’s look at some of the most common tax deductions. You want to make sure that you have the right documents for each deduction before you file.
Retirement Account Contributions
Your contributions to a self-employed retirement account or a traditional IRA can be deducted. Just make sure that you stay within the contribution limits.
Educational Expenses
If you are a student, then you can claim a deduction for fees and tuition that you paid. You can also claim the interest that you paid on your student loans as deductions.
The IRS isn’t going to accept your deduction claim without Form 1098-T. This shows the educational transactions.
Your student loan details are going to be on Form 1098-E.
Medical Bills
Your medical bills could lead to tax savings. This is only if the bills total more than 7.5 percent of adjusted gross income (AGI) for most people.
Mortgage Interest and Property Taxes
If your mortgage payment includes an amount that is escrowed for property taxes, then that’s going to be included in Form 1098. Your lender will this to you.
The paper is also going to show how much home loan interest that you can claim on Schedule A.
Charitable Donations
You should save your receipts for charitable donations to make sure that your generosity pays off during tax seasons. The IRS might nullify your claim if you don’t have the proper verification.
Classroom Expenses
Are you a teacher or some other kind of educator? If so, then you can deduct up to $250 spent on classroom supplies.
Local and State Taxes
You can deduct all kinds of other taxes that include either local and state income or sales taxes. Including property taxes, this can be up to $10,000.
You won’t need receipts for sales tax. The IRS is going to provide you with the average amounts that you are able to claim.
The tax on most purchases, however, can be added to the table amount. So you want to save those receipts.
You should also discover more about tax accountants because they can help you find deductions that you might not have thought of.
The Importance of Knowing What Information You Need to File Your Taxes Correctly
Hopefully, after reading the above article, you now have a better idea of what information you need to file your taxes correctly. As we can see, it’s best to be organized throughout the year so that you can more easily get your taxes prepared and filed.
Are you looking for other helpful tax articles like this one? If so, then make sure to check out the rest of our site today for more!