Dear Angel,
Tax season is upon us, and I heard that it may take longer to get tax refunds this year. I am not the most organized person in the world, but want to make sure I am prepared earlier than usual this year since I usually wait until the last minute. Do you have any tips on getting organized to get a jump on my taxes this year?
Thanks for your help!
Earl Lee
—
Dear Earl,
You are wise to plan now for tax season and to get a bit of a head start. Although you have three extra days to file your taxes this year (until April 18), it doesn’t mean you should delay starting the process.
To help you get motivated, these are some ways to organize everything you need to get a head start on your tax return:
1. Get organized: As tax documents arrive, put them in a folder. This can be a physical folder for paper statements and a digital folder for documents arriving by email or that you need to download online.
2. Pay attention to your mail: In a digital world where many people pay their bills online, envelopes in the mailbox may get put in a pile to sort later. Now is a bad time to do that. Here are some of the tax documents that have begun arriving in January and February:
- W-2 shows employment income if you are still working;
- 1099-NEC stands for non-employee compensation paid to independent contractors;
- 1099-INT documents interest received from a financial institution;
- 1099-B reports gains and losses from stocks, bonds and other securities sold through a broker;
- 1099-R shows distributions made from pensions, annuities, IRAs and other retirement plans.
Some envelopes will be marked, “important tax return document enclosed,” but sometimes an important piece of paper could be included with a regular monthly statement, such as a mortgage statement.
3. Know your standard deduction: If you are confident you will take the standard deduction, which is $12,550 for single filers and $25,100 for joint filers this year, that will reduce some of your paperwork. (If you are 65 or older, the standard deduction for married couples filing jointly is $2,700 higher. If your filing status is single and you’re 65 or older, you get an additional $1,700 for your standard deduction.) It doesn’t make sense to go through the time and effort to itemize if your itemized deductions are less than the standard deduction.
If you plan to itemize deductions, you will need to look through your checkbook, credit card statements, and receipts if you haven’t been tracking potentially deductible items, such as charitable contributions, during the year. This takes time, but the effort may be worth it, if for example, you’ve taken out a mortgage or incurred large medical expenses. Also, states have different limitations on itemized deductions, so some expenses may be deductible on your state return even if you take the standard deduction on your federal filing.
4. Figure out what you paid (cost basis): If you sold real estate, stocks, bonds, or other securities in 2021, you will need to know the cost basis, or what you paid, to calculate any gain or loss on the sale. If you sold a home, you need to compute your purchase price and any improvements to determine your cost basis and if you need to report a capital gain. Up to $250,000 of the gain on a home sale can be excluded for single filers and up to $500,000 for those filing joint returns. Even if the home sale falls below those amounts, the sales transaction needs to be reported to the IRS.
5. Compile missing documents: For certain documents, such as unemployment compensation, you typically have to go online and print them out. For charitable contributions of $250 or more, you need a written acknowledgment or receipt from the nonprofit. If the organization did not send the letter yet, or you’ve lost it, now is the time to contact the charity to request a copy. If you got divorced in 2021, your tax preparer will want a copy of the divorce decree particularly if you have children, for information such as which parent can claim any dependent children that year.
6. Check your stimulus check: If you received a third Economic Impact Payment, or stimulus check, in 2021, you may need that information to determine if you can claim a larger amount. If you received no stimulus check, you may be able to claim the credit on your 2021 return.
If you feel overwhelmed, consider hiring a tax preparer, such as the professionals at the Farr Law Firm. Remember, even if you hire someone to prepare your tax return, you are responsible for everything on the return, so it’s important that you review everything carefully before it’s filed. If you wait until the last minute, there’s not a lot of time to do so, so you’re better off doing it earlier.
No-cost initial tax consultations are being offered at the Farr Law Firm, so please call the office to schedule your appointment as soon as possible, before time slots are filled.
Hope this helps!
Angel
Print This Page
About Renee Eder
