As the new year begins, it’s time once again to prepare for tax season. Here are five tips to help.
April 15 (or April 18 in 2017) is also known as “tax day,” and it's a date many try to ignore until it becomes unavoidable. But early preparation can be important, especially if you’re new to the process of filing returns.
“Younger people go through a lot of life changes, and there’s a lot they can benefit from,” said Lisa Greene-Lewis, a certified public accountant and the TurboTax blog editor.
If you don’t have a lot of experience filing taxes because you’re in your first job, or because your parents always took care of it, there are a few things you need to know in order to be copacetic with Uncle Sam.
1. Income statements. If you’re employed by a company full-time, they must issue you a W-2. It will show total earnings, what was taxable, and a breakdown of taxes. If you're an independent contractor each company you worked for should send you a form 1099-MISC showing your gross earnings.
2. Asset statements. Have a savings or brokerage account? Expect to get a 1099-INT showing interest paid on a savings account. For a brokerage account, expect a 1099-DIV for any dividends paid and a 1099-B for any proceeds from brokerage transactions.
After you’ve rounded up all the required documents, it’s time to look at how to reduce the amount you owe in taxes. If you have worked as an independent contractor, or if you plan to claim itemized deductions instead of the standard deduction, you may need to spend some time getting organized. For more information, the IRS has posted a summary called “Should I Itemize?” that lists the most common deduction categories.
3. Job-related deductions. “Track down all receipts and documentation for business-related expenses, from the mileage records you kept when using your car for business, to the office equipment and supplies you bought, to the utility bills you paid to keep the home office lights on,” Greene-Lewis says.
She says self-employed people who bought health insurance should look out for a 1095-A. That form shows how much the person paid for health insurance and if they received a subsidy to offset the cost. People who have health insurance through their employer will get a form stating such, but the form is for informational purposes only, she added.
Additionally, people who looked for a job in their same field may be able to deduct travel expenses, even if they didn’t get the job. People who moved for a job and weren’t reimbursed by their employer may be able to deduct those expenses, too, she said.
4. Education and property expenses. Filers who just finished school may be able to get an education tax credit and deduct up to $2,500 in student loan interest. If you live in a state where you’re charged a personal property tax, you may be able to get a deduction. It’s important to get backup documentation from the agency collecting the tax. Each taxing body should send you a statement, so if you moved within the last year, make sure they know where to find you.
5. Charitable deductions. If you give cash or donate items to a charity, that’s another deduction, Greene-Lewis said. For cash gifts under $250, a cancelled check or credit card statement is fine, and for goods, be sure to get a receipt.
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