The holidays have come and gone and the new year is here. Flipping the page on the calendar means it is time to begin preparation for filing taxes. For some, tax season can be a source of anxiety.
Whether you've been in the workforce for years, you're filing for the first time, or you're navigating a change in your financial situation, finally wrapping up your finances for the year will come as a huge relief.
Make an appointment with your accountant and continue reading to learn exactly what you need to know before you file your taxes. Make sure to also read our article on the smart tax moves you should be making.
These are the tax documents you need on hand.
First things, first, break out a manilla folder and start filling it with the documents you need to file your tax return. Here's a rundown of what you're going to need to ensure you're in good standing with the IRS on April the 17th.
- Identifying information: To prove you are who you say you are, make sure you’re equipped with your social security number. If you’re married or have dependents, you’re going to need their social security number as well.
- Proof of income: Any income you have received over the last year needs to be well documented. Watch your mailbox for W-2 forms from your workplace. If you've made over $600 from a contract gig, you will receive a 1099 as well. Additionally, you will need any documents associated with income from the previous year's tax return, investment and rental income, business income, unemployment income, social security benefits, and any miscellaneous income from last year.
- Proof of income adjustments: Make sure you are armed with documentation of mortgage and student loan interest paid, contributions to your IRA or medical savings accounts, and self-employed health insurance. Additionally, some circumstances warrant a homebuyer tax credit or green energy tax credits.
- Proof of expenses: Spending your income on certain expenses over the course of the year can influence what you pay in taxes. Gather up receipts and statements for any costs associated with education, adoption, childcare, charitable giving, medical events, self-employment, moving, casualty, theft, and your job.
This is what you need to know about tax deductions.
For many, what you can and cannot deduct can feel confusing. There are many rules about tax deductions and making a mistake can result in paying more in taxes than you should or an inconvenient tax audit. Josh Zimmelman, owner of Westwood Tax & Consulting, provided some helpful advice for claiming deductions.
Certain transportation expenses are deductible. For instance, if you are driving during the day for work-related tasks, this can be deducted as long as you can provide a detailed record of miles driven. However, your daily commute is not a deductible expense, according to Zimmelman.
Many charitable gifts are tax-deductible and any expenses incurred because of charitable work can be deducted as well. There is one important thing you need to know about deducting charitable gifts.
“Not all charitable giving to non-profit organizations are tax deductible,” says Zimmelman. “Certain organizations do not qualify, and if you received anything in exchange for your donation, you might not be able to deduct the full amount.”
As always, make sure you have receipts from your donations. Gifts made as political contributions are not tax deductions.
If you're a parent, the money you spend on childcare while you are working is deductible. Expenses associated with summer camps can also be deducted, according to Zimmelman. If you're a college student or participating in continuing education, you can also deduct what you've spent on your classes.
People working in certain careers might have additional opportunities for deductions. Teachers, for instance, are able to deduct as much as $250 of their unreimbursed expenses. Additionally, if you have a hobby that makes you money, that can serve as a deduction.
“If you have a hobby that earned you a bit of money this year, you can deduct any expenses related to that hobby, up to the amount that you earned,” Zimmelman explains. “If your small business has gone three years without a profit the IRS considers it a hobby until it becomes profitable again.”
“You can deduct 50 percent of meals with a client or employee, as long as there’s a substantial business discussion during the meal,” says Zimmelman of meal expenses outside of travel. “However, your lunch isn’t deductible.”
Lastly, there is the home office deduction. Only those who have a dedicated space used only for work, and who spend the majority of their work hours in that space, can claim a home office deduction.
These are the important dates you need to remember.
For most taxpayers, April 15th is burned into their brains as tax day. This year, there's an important change everyone should know, and there are other dates to jot down on your calendar. Here are the most important dates you need to know when it comes to filing your taxes.
- January 10th: If you work for tips, the 10th of January is your last chance to report your tips earned in December of the previous year to your employer. As long you have earned more than $20 in tips, you are required to report this income.
- January 15th: If you should be making estimated tax payments, this is your last chance to do so for the previous year. This can be done using form 1040-ES. And, as you make your way through 2018, you may need to make estimated payments on April 15th, July 15th, and October 15th.
- January 31st: By the last day of January, all employers are required to provide their employees with the W2 forms. If you are a contract employee, you should receive your 1099, as well.
- April 17th: Believe it or not, the 15th isn’t the deadline for filing taxes this year. Instead, all tax filing must be completed by April 17th, 2018.
This is what you should do if you’re having trouble with your taxes.
If filling has become a headache this year, there are a few different things you can do. First, you can hire a professional accountant. This is recommended in any unusual tax situations or if you have experienced big financial changes in the last year. An accounting firm, can help you sort out any confusion and they will file your taxes for you. If you are electronic filing using a service like Turbo Tax, you can also get limited support through their website or over the phone.
If things get really sticky, you can reach out to the internal revenue service. They have a Taxpayer Advocate Service that handles all disputes. This service is typically reserved for those who have unsuccessfully tried to resolve issues with their tax return through conventional channels. You can learn more about the Taxpayer Advocate Service on the IRS website.