It’s that time of year to get started on the annual task to do your taxes. Personally, I’m one of those folks that says I’ll complete small tasks throughout the year to make it easier at year-end. Unfortunately, my proactive thoughts do not turn into action on this one! Now it’s time to get it all put together!
I would suggest folks keep a 'tax folder’ where they could save important receipts. That folder likely looks different these days! Most have some form of electronic folder to save important tax information. Whether you have a client portal on your accountant’s website or a folder on your home computer for tax documents, so much comes by electronic means you may need to have two: one for electronic and one for paper tax documents. Here are a few things I’d keep in those folders:
Official Tax Documents: The year-end tax documents you receive in January and February, such as your W-2s, 1099s, 1098s and other official tax documents.
Receipts collected throughout the year for various functions:
Kids:
- Childcare receipts
- In Minnesota, receipts for educational activities for school age children
- College expenses, including books and room & board (in addition to collecting the tax form 1098-T that records tuition)
Charity:
- Charitable receipts for cash donations
- Charitable receipts for donations of clothing and other goods, any volunteer expenses, stock donations
- Records of distributions from an IRA sent directly to charity
Payments: Estimated tax payment confirmations, including the agency paid, date, and amount.
Home Improvements: Receipts for qualifying energy efficiency home improvements
EVs: Receipts for the purchase of a qualifying electric vehicle
Medical: Medical receipts, including amounts paid out of pocket for health insurance (not those paid though an employer), deductibles, prescription drugs, medical lodging and mileage
Property Taxes: Receipts for both real estate taxes and license plate renewals
For Landlords: Collect receipts for your rentals and organize by property. Create a profit and loss for each property that includes total rents received, and a line item for each expense category.
For Business Owners: if you’ve not already, organize your receipts by business. Create a profit and loss for each business that includes gross receipts, cost of goods sold and each expense category.
I find the next step in preparing for tax season important. Review your accounts for activity that may have a tax impact. I review my checking and credit card accounts for activity that may be a potential deduction, and I make a worksheet of expenses that apply to charity, medical, rental or business.
If you own rental property or a business, review your calendar for potential mileage. If you have substantial rental or business mileage, consider using a smartphone App that tracks mileage to better track it for tax purposes. Prepare your business and total mileage numbers so they are ready when you complete your return.
There are also several life events that can impact your tax preparation. The list below helps you consider what other information you may need to collect and recognize in your return:
- Marriage
- Divorce
- Birth or adoption
- Death of child or spouse
- New household members
- Unemployment
- Retirement
- Buy/Sell a residence or rental property
- Inheritance
- Job change (don’t forget your old employer W-2!)
- Lawsuit settlements
Good luck as you get prepared to complete your return.
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