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Tax Prep Overview: Information to Gather

For many people, completing their taxes can be overwhelming and a dreaded annual process. There are so many forms to gather and expenses to keep track of, not to mention the ever-changing tax laws that make things even more confusing. If you are working with a professional or completing your taxes on your own, you will need documentation and specific information to get your taxes done right. Here is a checklist of the main items you should need to complete your taxes and lessen the burden.

Income – Pretty self-explanatory; any income received during the year must be reported on your tax return.

  • W-2 Forms- These forms are issued by employers and give an overview of your compensation for the year and the amounts that have already been withheld to pay taxes. Other deductions will also show up here, like 401k contributions and non-qualified benefit plans.
  • 1099 Forms- There are many different versions of 1099 forms, but the purpose of all 1099 forms is to report income other than wages, salaries, and tips. For example, 1099-MISC is for income from contract work, like a consultant. 1099-INT, 1099-DIV, and 1099-B are for investment related income. Another common 1099 form is 1099-R for retirees who are receiving distributions from retirement accounts or a pension.
  • K-1 Forms- Not as common as the previously mentioned forms, K-1s are issued by entities that are eligible for pass-through taxation, which shifts the tax liability down to the individuals who have a beneficial interest. Entities that issue K-1s are S-Corporations, Trusts and Estates, and Limited Partnerships.

Adjustments to Income – The below list of items reduce the amount of income that is taxed.

  • IRA Contributions- Contributions to a traditional IRA can be deducted from your income
  • Student Loan Interest (Form 1098-E) & Other Tuition Expenses (Form 1098-T)
  • Self Employed Retirement Plan Contributions (Keogh, SEP IRA, SIMPLE IRA)
  • Health Insurance Premiums if you are self-employed
  • Alimony Paid- Only for divorces prior to 1/1/2019; this adjustment was eliminated with the passing of the new tax law in 2017
  • Educator expenses- School teachers can deduct up to $250 spent on classroom supplies

Itemized Deductions – Many itemized deductions have been limited compared to prior years, and with the expansion of the standard deduction to $24,400 for married filers filing jointly ($12,200 for single filers) the majority of taxpayers will take the standard deduction. It is still important to compare your itemized deductions vs. the standard amount to see what ends up being the higher amount.

  • Home Mortgage Interest (Form 1098)
  • Investment Interest- Interest paid on a margin or securities backed loan
  • Charitable Donations- Make sure to include cash and the value of donated assets
  • Medical and Dental Expenses- Only eligible if the expenses are more than 7.5% of adjusted gross income
  • Taxes Paid
    1. State & Local Income taxes
    2. Real Estate Taxes
    3. Personal Property Taxes

Credits – Credits provide a dollar-for-dollar reduction in the amount of taxes you owe, whereas deductions reduce the amount of your taxable income for which you owe taxes on.

  • Child and Dependent Tax Credit- This credit provides up to 35% of qualifying expenses for taxpayers who require childcare in order to work
  • American Opportunity Tax Credit- This credit is available for married filing jointly taxpayers who make $160,000 or less ($80,000 or less for individual taxpayers) and for families paying for college education. Taxpayers can receive up to $2,500 per student.
  • Lifetime Learning Credit- This credit is available for married filing jointly taxpayers who make $116,000 or less ($58,000 or less for individual taxpayers) and can be as high as $2,000.