This time of year you might have your mind on holiday shopping and travel, getting your annual free credit score, or reevaluating your estate plan, but it's also a great time to get started on your taxes.
Compiling everything you need in order to prepare your federal income taxes is often a bigger challenge than actually doing them. Though the process of locating forms and documents may feel overwhelming, it really just requires knowing what you need and an organized approach to hunting and gathering.
Obtain the Right Tax Form
Make sure you get the right tax form for your individual situation. Many people will use the same one they used for the previous year, but if your circumstances have changed, you may need to use a different form. The options for most employed individuals are the 1040EZ, the 1040A, and the 1040. To know which is right for you, visit the IRS website (where you may also download the appropriate form) at www.irs.gov.
Gather Personal Identification Information
Of course you will need to know your own Social Security Number, but you may need to know a few others as well. These may include those of your spouse, children, and anyone to whom you pay taxable income, such as a childcare provider.
Gather Income Information
Your next task is to collect all of your income information. Don't forget that side gigs, cryptocurrency gains, and unemployment benefits are all counted towards your income for the year. Depending on where you derived your income, you will need documents for:
Collect Deduction Information
If you plan to itemize your deductions, make sure you account for everything. Depending on what you are able to deduct, you’ll need to have records for such outgoing expenditures as:
Bonus Tip: Take advantage of benefits now
Check to see when your various benefits expire and take advantage of them while you can. Check to see if you have any Flexible Spending Account (FSA) dollars remaining and use them before they vanish, try to make the maximum contributions to your retirement accounts, and make your donations before the end of the year! As of this year, even those who do not itemize deductions can still deduct up to $600 for cash donations to qualified charities, if married and filing jointly.
If you have to scavenge for each necessary item and are scrambling to get things done at the end of the year, make a commitment to keep good records from this point forward. It will make this time next year a much less demanding experience.
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