Tips for Taxes: Plan & Organize to Save Stress, Time, & Money

GUEST BLOGGER: Karen Mason, The Approachable Accountant

Last week, I wrote about taking tax deductions for the charitable contributions you made when you took Lisa’s advice to Let it go. Ideally, you have your receipts and you’re just waiting for those W2s and 1099s to come rolling in. Keeping good records is the best way to ensure that you are able to file your tax returns accurately and on time, whether you file them yourself or hire a professional.

This week, I’ll show you the best way to organize your documents, receipts, and other information to make tax preparation less stressful. I’ve included some pro tips for working with a tax professional that might even save you some money!  Then, I’ll share the things you can do NOW that will help you save money on your 2019 taxes.

This post is intended to provide you with useful, general information. Please remember that I am a tax professional, but I am not your tax professional! If you have questions about your tax position, please consult with your qualified tax preparer or reach out to me for a one-on-one consultation.

INCOME DOCUMENTS

Take a few minutes to review last year’s tax return and think about any changes that have occurred in the past year. Use this information to make a list of the documents you expect to receive, such as W2s from your employer, 1099s for retirement income, interest, dividends, and self-employment; brokerage statements and K-1s. If you received a tax refund from the state, you should have a W2G to report the refund.  If you had substantial winnings from the lottery, casino, game show, or raffle, you should receive documents for that as well. If you sold a home, you should receive a Form 1099S to report the proceeds from the sale. Some settlement companies do not issue a 1099S if the total proceeds are less than $250,000.

Write the list on the front of a large envelope labeled “INCOME,” and check of items as you receive them. You may receive items you did not expect; simply add them to the envelope and the list.

It will be easier to prepare your return if you group items together by type of income. I also recommend scanning your documents and keeping the electronic copy in the cloud. You will not have to worry about documents that are damaged or faded over time.

DEDUCTIONS

With the new higher standard deduction, fewer people will be itemizing this year. For most taxpayers, state taxes, mortgage interest, real estate taxes, personal property taxes, and charitable contributions comprise the majority of their itemized deductions. Those with chronic medical conditions may have significant medical expenses to report.

Your child care provider should provide you with a tax ID number as well as an annual statement. If the provider does not prepare a statement, you should be prepared to provide cancelled checks or receipts.

College students will receive a 1098-T to report tuition paid. If the student is a dependent, the parent can claim the expense, even though the 1098-T was issued in the student’s name.

If you made an especially large purchase that involved paying sales tax in excess of your state income tax, you’ll want to include the sale documentation with your tax materials.

Some churches and charitable organizations provide an annual statement combining all of your cash contributions. Otherwise, track down the individual receipts or cancelled checks.

Again, organize these items by type of expense, and scan them.

WORKING WITH A TAX PROFESSIONAL

If you have scanned your documents and provide your tax preparer with an electronic copy, it may save you money! Some preparers charge by the hour, and others charge an additional fee for handling paper. Make sure you have all your documents before you submit them to the tax preparer. If a return is filed and must be amended later, there will be an additional fee. Occasionally, you may receive notification that your brokerage statements or K-1s from other investments will be delayed. If that is the case, notify your tax preparer to hold the return.

Remember, ultimately you are responsible for your tax return. The preparer can only work with the information you provide. Your tax preparer should ask questions about your income and expenses, changes in your circumstances, etc. Answering these questions fully is the only way to pay the least, legal tax.

HOW CAN I SAVE ON MY 2019 TAXES?

The time to maximize your tax savings for 2019 is NOW. Meet with a tax planning professional or financial planner to about reducing your tax liability with investments and strategic spending or do some research on your own. You should revisit your tax plan in the third and fourth quarters of the year to review events and make adjustments.

Label a large envelope or accordion file “TAXES” and add receipts, information, and reminders to it throughout the year. Add a copy of your 2018 return to the file and use it to help you compare your income and spending year to year.

Finally, let’s talk mileage. Most taxpayers forget to record the beginning/ending mileage on their vehicles at the New Year, and that usually results in miscalculated mileage deductions. Do it now!  If you are self-employed, record all of your miles (business or not) and auto expenses to maximize your deduction. Volunteer and medical miles are also deductible.  I recommend using a mileage tracking app like MileIQ, which is free for up to 40 trips per month.

A little planning and organization can ease the stress of tax season, minimize your tax liability, and make the most of your money. This year, the IRS plans to start accepting and processing returns on January 29th. Will you be ready?

Karen Mason is The Approachable Accountant, offering bookkeeping, payroll, and tax preparation services with a heart for small business. Based in Leesburg, the firm specializes in tax preparation for individuals, sole proprietorships and microbusinesses. She holds a B.S. in Accounting from Shepherd University and is currently pursuing an M.A. in Entrepreneurship.