Tax season is here. Some approach this time of year determined to gather all the necessary paperwork early, while others avoid thinking about it until the last minute.
Are you ready? Here are four essential tips to ensure your taxes are filed correctly and on time.
1. Update your contact information with the IRS
If you’ve recently gotten married or divorced, changed your name for another reason, or moved to a new home, make sure you update your new information with the IRS and the Social Security Administration (SSA).
Legal name changes must be updated with SSA. You can contact your local Social Security office to apply for a new Social Security card with your current legal name. You’ll need proof of identity, such as a government-issued ID or your marriage certificate.
If you’ve moved since last year, we will update your address on your tax return. You can update your mailing address by calling the IRS directly or mailing in the IRS change of address form or a written statement.
2. Know your filing status
The IRS has five primary filing statuses:
- Head of household
- Married filing jointly
- Married filing separately
- Qualifying widow/widower with dependent child
Each status has different filing requirements and deductions. You want to make sure your status is correct because you don’t want to miss out on all your eligible deductions.
Here are three examples of current deductions:
- Head of household: $20,800
- Married couple filing jointly: $27,800
- Single or married but filing separately: $13,850
How you file may also affect your tax bracket, which may increase or decrease your tax obligation. This is another reason why you should make sure your filing status is accurate and up-to-date.
3. Gather and organize your tax documents
This can be the most daunting task you face during tax season. But gathering all the paperwork required for your tax return will ensure your returns are accurate and won’t need to be amended later. Root Tax sends out a checklist of tax documents you need every year to make it easier for you.
Here’s a list of the most common documents you’ll need for tax preparation:
- Form W-2: This details your income from your employer for the past year. Employers are required to send out this form by the end of January.
- Form 1099: If you are self-employed or were contracted to work for someone last year, your client will send you a 1099 for the amount they paid you. Since the client does not deduct or withhold taxes from their payments, you will need to pay income tax when you file your tax return.
- Form 1099-DIV: This form is slightly different from the regular 1099. It outlines any dividends or distributions you earned from your investments, such as stocks or bonds.
- Form 5498: This form lists contributions to your individual retirement account (IRA).You should receive this form from your brokerage firm or bank in January.
- Form 1098: Homeowners will receive this form from their mortgage company detailing the amount of mortgage interest you’ve paid in the past year.
One note for business owners: Make sure to keep all receipts and other documentation of business expenses to make sure you include them all on your tax return and maximize your deductions.
Having a dedicated folder for tax return paperwork makes it easier to file documents away throughout the year, so if you haven’t already started a folder, it’s a good idea to start one now for next year.
4. Contribute the maximum to your Retirement Plan
For example, retirement contributions reduce your tax liability, so it’s a good idea to contribute as much as you can each year. The IRS currently allows you to make a total contribution of $6,500 for the year (or $7,500 if you are over 50 years old) to your IRA.
Getting ready to file your tax return takes some time and planning, so earmark a few hours soon to gather everything you need. Once you’ve followed these tips and you’re ready to file, contact Root Tax to get things started. We will make sure to review all your information and complete your return as quickly and efficiently as possible.