Tax season does not have to be feared― if you are prepared. Organization is key and having all your documents ready before you sit down to do your taxes will cut your stress in half. Follow these five steps to success:
1. An accordion folder is a great way to keep track of all your files. Keep this folder accessible throughout the year. Label for the following: Income, Receipts, Banks, Investments, Childcare, Charitable Donations, Medical, and Other.
2. Keep a spreadsheet of all your charitable donations.
3. Label your receipts when you get them. Who were you with? What was it for?
4. Have a secure place for all your tax-related documents.
5. Shred documents you no longer need.
What document should I gather?
You will need proof of all sources of income (W2s, retirement, gambling winnings, etc.), tax ID/social security numbers and full names for you and all of your dependents, proof of charitable donations, mortgage, and student loan statements, proof of childcare expenses, medical receipts, state/local taxes statement, savings/investment/dividend statements, and if you are doing this on your own, a babysitter for the day.
If hiring an accountant is not in the budget and you don’t want to go into a tax office, there are several online resources that will walk you through step-by-step. Depending on your income, the online service may be free of charge. Just make sure you find a reputable company.
Important Changes to the 2018 Tax Code
1. Tax returns are due by April 15, 2019.
2. 1040A and 1040EZ are no longer available. You will need to file a 1040.
3. Change in tax rates. Tax rates have been reduced.
-The 2018 tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
A. The standard deduction amount has been increased.
-Single or Married filing separately—$12,000.
-Married filing jointly or Qualifying widow(er)—$24,000.
-Head of household—$18,000.
B. Alternative minimum tax exemption
5. Personal exemptions have been suspended, but there is an increase for the child tax credit and additional dependents. SSNs are required for each dependent.
6. Own your own business? Beginning in 2018, you may be able to deduct up to 20% of your qualified business income from your qualified trade or business. The 2018 rate for business use of your vehicle is 54.5 cents a mile.
7. Changes to itemized deductions. There have been a few changes to itemized deductions affecting overall itemized deductions, state and local income, sales, and property taxes, job-related expenses, theft loss, mortgage interest, and contributions.
8. Adoption credit. The adoption credit and the exclusion for employer-provided adoption benefits have both increased to $13,810 per eligible child in 2018.
After Tax Must-Dos
After you have filed your taxes, you will need to keep your records for at least 3 years. However, this will depend on your tax situation. If you are a small business or otherwise self-employed the requirement may be different. To find out more, go to www.IRS.gov.
1. Which documents should I keep?
The most important document to keep is a copy of your filed tax returns. If the IRS doesn’t have a copy of your tax return, it’s going to assume you didn’t file one, and you have to prove you filed it.
2. How long should I keep my records?
-Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later if you file a claim for credit or refund after you file your return.
-There are exceptions to this 3-year rule, especially if you are a small business owner/self-employed. For more information visit www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records.