Note: This is a guest post by Bert Seither, Director of Operations at Corporate Tax Network. We’re honored to have him on the blog.
It’s hard to believe this but the tax filing season is here again. Rather than wait until March or April to get organized, you might want to begin your preparation now to ensure a timely and accurate filing of your tax returns and before time pressure builds. Here are a couple of tips to keep in mind.
Create an Expanding File for Income
Create an accordion file with tabs to store statements you will get this month of January. Label the sections for W2 and Wage Statements, Investments, Mortgage, and so on. If you receive a monthly statement, such as from your brokerage account, or your pay stub, put in the most current statement and set aside the previous one.
Always keep the December statement because you will need it to check the full year-end statement you will receive later. Make sure to continue to update these files throughout the year so you don’t find yourself frantically searching for documents when it comes time to file.
- Employee and Independent Contractors – If you are an employee, your W-2 needs to be issued to you by January 31. Check it against that last pay stub to make sure the W-2 data is correct. If you are an independent contractor, you should receive a form 1099-Misc by the same date.
- Investments - You will have to keep track of interest income, dividends, and capital gains or losses. All brokerage firms will issue a year-end statement usually around the end of January that will show interest (1099-INT), dividends (1099-DIV) and Gross Proceeds (1099-B). The 1099-B will show the amount you received when you sold stocks or bonds. Look closely to see if the report also shows what your “basis”, or cost of those investments was. Brokerage firms are not yet required to report that information, although some do so. But it is necessary to calculate gains or losses and if that information is not reported, or it is incorrect, it will be up to you to prove what you paid for an investment and that may mean hunting down prior year statements.
- Retirement distributions – Distributions from pensions, 401Ks and IRAs are reported on form 1099-R, so file them in a separate section of your folder.
- Rental Property – If you had rental property, you should be maintaining a monthly record of income and expenses so they can be combined for a year-end summary. You will receive a mortgage statement from the bank and a real estate receipt from the city, so check them with your numbers. Most other expenses will normally be paid through your bank account and you need to go through those bank statements and pull the checks that relate to the property. These expenses can be used to offset your rent income, and that means less of your investment property earnings are taxable. However, the IRS will disallow claimed expenses that you cannot substantiate.
- State Refunds and Unemployment Compensation – If you received a state tax refund or collected unemployment, those amounts will be reported on Form 1099-G. The form is sent to the IRS so hang on to your copy and report it. Depending on the amount of unemployment and your prior year’s tax refund, all or a portion of those amounts may be taxable.
Check back in with us tomorrow for the second half of Seither’s post. Thanks for reading!
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About the Author
Bert Seither is Director of Operations at Corporate Tax Network, a full-service CPA and Accounting firm that specializes in helping small to medium sized businesses position their taxes, financial statements and business plans for business loans. Corporate Tax Network has accountants, CPAs, and Enrolled Agents for all 50 states in the U.S.