How to Be Prepared for Tax Season
Keeping good records can save you lots of stress when it comes time to file your taxes. Each year when it’s time to reach out to a trusted South Florida tax advisor, you’ll receive requests for documents and information that you’ve piled somewhere. When you don’t have an organized way of keeping your records, it creates frustration and anxiety when you need to locate the information. But it’s not too late to start keeping good records.
If you want to keep digital records, you’ll need to set up some folders on your computer. Make sure your computer is a private device that is password protected. Never store personal information on a public computer; it would be better to keep paper records if you do not have access to a personal computer. The best way to digitally store these documents is to have a folder on your computer that is labeled with the tax year. Inside of the folder that is labeled with the tax year, you can create subfolders that are labeled with the categories of information that you need.
Listed below are the categories of information that tax preparation services west palm beach fl such as MJ Tax will require to complete your taxes. These are the subfolders that should be created inside of the main tax year folder:
1. You’ll need proof of identification. Social security cards are not easy to replace. They should be stored in secure locations such as a fireproof safe or in a safety deposit box. For easier access, you can keep digital or paper copies of yours and your dependents’ social security cards, but original copies should be securely stored. Create a subfolder called IDs and use a printer with a scanning function to scan all of the social security cards to keep in this digital folder. If you find that keeping paper records is more simple for you, make a paper copy of your social security cards to keep in a paper folder labeled IDs.
2. Secondly, you’ll need to keep copies of your income statements. These statements are usually W-2s and various types of 1099s. There are many types of 1099 statements, but you will see “1099-” printed in the corner of the statement; this tells you that it is income. Each company that you receive income from is responsible for sending you proof of that income. If they send a paper copy via mail, they must have it postmarked as sent to you by January 31 of each calendar year. If they are providing a digital copy for you, it must be provided by that same date. Most modern companies will provide a digital copy of income that you can save in a subfolder called “Income”, followed by the tax year. If/when you receive a paper copy of your income, you may scan and store it digitally or you may keep it in a paper folder labeled “Income” followed by the tax year. Make sure you save all W-2s and 1099 statements, as well as SSA-1099 for Social Security benefits and RRB-1099 for railroad retirement benefits.
3. The third type of documents that are important to save are statements that reduce your virtual tax preparer burden. MJ Tax Services south Florida and the US government considers these deductions which are subtracted from your taxable income. This is a good thing; it’s important to keep good records so that you may lower your tax burden. These forms typically have the number “1098” printed in the corner, and include such information as mortgage interest statements, donations to tax-exempt organizations, interest you paid on a student loan, tuition statement (documenting how much you paid in tuition for post-secondary education), and other types of legal deductions. You should also look for a statement that has 1040ES in the corner if you paid quarterly taxes throughout the year. Please note that deductions are different for every person; you may receive many of these, or none at all, depending on your personal circumstances and financial situation. Each of these statements should be available to you via mail or digitally. You’ll want a digital or paper folder labeled “Deductions”, followed by the tax year for these statements.
4. The fourth type of information you’ll want to save to avoid IRS tax problems is receipts for expenses. These include money you’ve donated to charities, paid for medical bills, any IRA contributions, and certain types of education expenses. Receipts of these types can pile up fast, making it difficult to keep accurate digital records. There are several apps that are available to help you with this. The most popular ones are QuickBooks, Expensify, Receipt Bank, The Kodak Alaris, and Bench. Take some time to research these to determine which would fit best for your financial situation. These apps make it easy to scan and store receipts to save for your taxes. Of course, if you prefer the paper option, you’ll want to create a folder labeled “expense receipts”, followed by the tax year, and save them all in that folder.
5. The last thing you’ll want to have a digital or paper copy of is the previous year’s tax return.
Keeping these records throughout the year will significantly reduce your stress when it comes time for MJ Tax to prepare your taxes. MJ Tax is a full-service Boca Raton accounting firm ready to serve you.