Preparing For Tax Season
Hopefully, you’ve already started your taxes or at the very least have taken the time to gather your tax documents so you’re ready to go, whether you do your taxes yourself or work with a CPA or other tax professional.
It’s always a good idea to create a checklist of all the tax documents and relevant information you need for your tax returns, including any information or changes that may materially affect your tax liability. You can then take that checklist and re-use it each year, updating it with any pertinent information/changes and removing any irrelevant and no longer applicable items.
We all live busy lives so it’s easy to forget the little details and minutia. Having a comprehensive checklist will help you stay ahead of the curve at tax season.
If you haven’t created a checklist, you can always go through your prior year’s tax documents and information to start building an initial checklist. If you work with a CPA or tax professional, they will usually tell you what you need to provide. The list generally stays the same from year to year outside of any significant changes.
If this is the first time you are working with a CPA or tax professional, you can ask them for a list of the tax documents and information you need to provide for them to help prepare your tax returns. They’ll probably ask you some questions and gather certain general information from you prior to letting you know what tax documents and additional information they will require.
Below is a list of some common items you’ll want to compile when preparing your tax returns. Not all items may apply to your specific tax situation. In addition, this is not intended to be a complete or comprehensive list so be sure to speak with a CPA or tax professional for your specific tax situation.
A copy of your previous year’s tax return – May be required if working with a new CPA or tax professional for the first time. Can also be helpful as a self-check if you prepare you own tax return.
Form W-2 – For wages/income earned from employment. If you are a salaried employee, you should receive a Form W-2 from your employer. If you worked for more than one employer during the tax year, you may receive more than one Form W-2.
Form 1099-NEC – For any non-employee compensation (ex: income earned from freelancing or as an independent contractor)
Form 1099-INT – For interest income earned on interest-bearing bank accounts
Form 1099-G – For the portion of the prior year’s state/local tax refund which may be taxable if you itemize your taxes and take the state/local tax deduction
Form 1099-DIV – For dividend income earned on any investments
Form 1099-R – For distributions received from a retirement account (ex: 401k)
IRA Contribution Amount - If you have and contribute to a traditional Individual Retirement Account (IRA), you will need to know the amount you contributed to the IRA during the applicable tax year. You can typically find this information on your year-end statement. It will also be reported on Form 5498, but this form may not be available until after April 15th as you are permitted to make contributions to your IRA for the prior tax year, up to the annual allowable limit, through April 15th of the current year. You do not need this form for your tax returns.
If you are a sole proprietor or own a business, you may also need to provide additional information including, but not limited to the amount of estimated quarterly taxes you paid for the tax year at the federal, state and local level, health insurance premiums you paid during the tax year (may qualify as a tax deduction) as well as provide your Schedule K-1 showing your proportionate share of profit/loss in the business if your business is a LLC taxed as a Partnership, LLC taxed as a S-Corp or S-Corp. Keep in mind that you won’t receive a Schedule K-1 until your business prepares and files its business tax return.
Sole proprietors and single-member LLCs with default tax treatment will typically report their business income on Schedule C of Form 1040 of their personal tax return. If you work with a CPA or tax professional, they may ask for a balance sheet and income statement (P&L) for your business so the appropriate income and business expenses can be properly reported on your Schedule C.
For simple tax situations, you can typically prepare your own tax returns using reputable tax software provided you have a good understanding of your tax situation. As your tax situation becomes more complex (ex: you start or own a business), you’ll want to consult with a professional like a CPA or tax professional to provide guidance and if necessary, prepare and file your tax returns on your behalf.