Taxes suck. Who wants to pay them? Last year our family was in 25% tax bracket and tell you, it hurts to see how much money we had to pay back to Uncle Sam.
Of course, we all know income tax is a necessary evil and the money you and I pay will support plenty of good things. In fact, your federal and state income tax dollars support the very things we all immigrated for to America: better education, better infrastructure and roads, a promise of social security benefits for retirees, Medicare and Medicaid programs, and a peaceful sky above your heads (read-defense). (Credit: CBPP).
You also may have heard, that America has a progressive tax system, which means you should expect to pay more taxes the more money you make. Well, that does not sounds right, doesn’t it? It seems like there is a “success penalty” ingrained in the U.S. taxation system. To offset this situation IRS offers a bunch of credits and deductions for usual folks like you and me can take advantage of to reduce our tax liability!
This post will help you to learn more about the most common personal tax credits and tax deductions you may be eligible for and the type of forms/information you will need to provide to claim them. (Credit: HR Block)
What information do you need to file taxes?
Personal and Family Information
- Your full legal name, social security # or tax ID number
- Your spouse’s full legal name, social security # or tax ID number
- Your kids’ full legal names, dates of birth, social security #
- Summary of childcare records including provider`s tax ID#
- For divorced parents: Form 8332 showing that the other parent is releasing their right to claim a child to you
Income Sources Information
- Employed: yours and your spouse – forms W-2
- Unemployed: unemployment benefits – form 1099-G
- Self-Employed and Small Business
- Income forms from your contractor (Forms 1099, Schedules K-1)
- Summary of all expenses (avoid bringing credit card statements, and receipts)
- Business-use asset information (cost, date placed in service, etc.) for depreciation
- Home-office information (% of house sq. footage used for business, all costs)
- Option2 for Home Office: claim full Safe Harbor Deduction= $1,500
- Record of any estimated tax payments made (Form 1040–ES)
- Rental Income
- Summary of all rental income and expenses
- Rental asset information (cost, date placed in service, etc.) for depreciation
- Record of estimated tax payments made (Form 1040–ES)
- Retirement Income
- Pension/IRA/annuity income (1099-R)
- Traditional IRA basis (last year statement)
- Social security/RRB income (1099-SSA, RRB-1099)
- Savings, Investments or Dividends
- Interest, dividend income (1099-INT, 1099-OID, 1099-DIV)
- Income from sales of stock or other property (1099-B, 1099-S)
- Dates of acquisition and records of your cost or other basis in property you sold (if basis is not reported on 1099-B)
- HSA account and long-term care reimbursements (1099-SA, 1099-LTC)
- Expenses related to your investments
- Record of estimated tax payments made (Form 1040–ES)
- Other Income & Losses
- Gambling income (W-2G or records showing income, as well as expense records)
- Jury duty records
- Hobby income and expenses, Prizes and awards, Trusts
- Royalty Income 1099–Misc., Any other 1099s received
- Record of alimony paid/received with ex-spouse’s name and SSN
Common Tax Credits and Tax Deductions Checklist
- Forms 1098 or other mortgage interest statements
- Real estate and personal property tax records
- Receipts for energy-saving home improvements (solar panels, solar water heater)
- All other 1098 series forms
- Cash donated to houses of worship, schools, other charitable organizations
- Records of non-cash charitable donations
- Amounts of miles driven for charitable or medical purposes
- Amounts paid for healthcare insurance and to doctors, dentists, hospitals
- Form 1095-A, if you enrolled in a plan through the Marketplace (Exchange)
- Form 1095-B and/or 1095-C, if you had insurance coverage through any other source (employer, insurance company, or Medicare, Medicaid, CHIP, TRICARE, VA)
- Marketplace exemption certificate (ECN) if you applied for and received an exemption from the Marketplace (Exchange)
- Fees paid to a licensed day care center, family day care, a baby-sitter for childcare
- Don’t include expenses paid through a flexible spending account at work
- Forms 1098-T from educational institutions
- Receipts that itemize qualified educational expenses
- Records of any scholarships or fellowships you received
- Form 1098-E if you paid student loan interest
- K-12 Educator Expenses: Receipts for classroom expenses
State & Local Taxes
- Amount of state/local income tax paid (last year tax return)
- Invoice showing the amount of vehicle sales tax paid
Retirement & Other Savings
- Form 5498-SA showing HSA contributions
- Form 5498 showing IRA contributions
- All other 5498 series forms (5498-QA, 5498-ESA)
Conclusion: The reality is, having all your forms together will save you hours of frustration and wasted time during tax preparation. It will also will make your income tax filing nice and easy.
Remember, when you file a simple tax return you can file your Federal tax return for FREE on your own, using Free HR Block software. That said, they may charge you a small fee for your state return.
As always, please seek the help of qualified Tax Prepare or IRS Registered Agent. Do not rely on the post as a primary source of decision making. My job is to help you and give you tools, should you need professional advice, please reach out to your nearest tax preparation office.
I never get tired of saying this – I love small business accounting and paying taxes. Every year I get really excited as soon as Christmas time comes around because it is time for me to close my books and start creating financial statements for our businesses.
Every year, I give myself extra time to assure my summaries are accurate and I check and re-check all my numbers. Next, at the end of January, all of our forms arrive and stick them in the folders according to the type: income, expenses, or business.
Lastly, I file my return. We celebrate with a cake and dinner the day i file day . And you know what, the night after I file taxes, I sleep like a baby, knowing that I paid my debts for all the good I and my family received for a year. I feel good about contributing, paying my taxes and continuing thriving in this amazing country.
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