Do you file your taxes yourself or do you use a tax advisor? Either way, you are responsible for gathering all necessary information to make sure you receive full credit for your deductions and tax credits. For many of us, collecting these documents and statements can cause major stress. A major key to avoiding this is organization. Through organization, doing your taxes becomes less complicated and reduces the anxiety levels known to skyrocket during tax season.
Organization
When filing your taxes, first sort your records into three categories:
1. Income
2. Expenses
3. Taxes
Use separate hanging files or binders for each of the three categories – if you are picky about how your files are kept, you can make subfolders to further break the three main categories down to more granular record keeping.
Income
This file is where you place your payroll stubs, 1099s if you are paid as an independent contractor, dividend distribution statements and the like. In addition, this file is where retirees put social security payments and distributions from taxable retirement accounts.
Expenses
Here is where you keep all your receipts for tax deductions such as mileage, uniforms, mortgage interest, donations and real estate transactions. For expenses related to a real estate transaction, you will need the closing statement and home improvement receipts.
Taxes
This is the third and final file you need. In it, put any tax receipts you have for estimated taxes or quarterly filings. If you own your home, do not forget to claim your real estate taxes. Your mortgage interest and tax payments are found on IRS form 1098, which you get from a mortgage lender.
Getting organized early allows you more time to figure your tax payment or refund and sets you up to stay organized, moving forward.
Obamacare
The Affordable Care Act affects all taxpayers not on Medicare or employer given health care insurance. While only 25% of filers need to do more than complete a check box on their tax forms to indicate they have health insurance, they may be affected by the tax penalty for not having insurance. If you are filing your own tax return, visit the Affordable Care Act (ACA) Tax Provisions web page on the Internal Revenue Site that offers several tips for individuals, families and employers.
What to do if you cannot pay your taxes on April 15
To many taxpayer’s surprise, the Internal Revenue Service is understanding if you cannot pay owed taxes by their due date. There are two online tools the IRS offers:
1. The Online Payment Agreement tool
2. The Offer in Compromise Pre-qualifier tool
The Online Payment Agreement is only available if your tax liability is less than $50,000, and it allows you to set up a monthly payment plan with the IRS so you can pay in installments.
The Offer in Compromise Pre-qualifier helps to determine if you qualify for a lessening of the amount you owe.