Your 2016 tax prep checklist
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Some people dread tax day because they don’t like giving up any more of their hard-earned money than they already have, but other people simply don’t like the time investment involved.Whether you’re filing your taxes yourself or having a professional do them for you, it can take a while to get through them – if you’re unprepared.Knowing what to expect going into filing could mean the difference between a little afternoon work or spending an entire weekend of more going through different forms. Getting everything ready will help when software like TurboTax prompts your for information, and a tax professional will have fewer questions to ask if you give her all of the necessary forms right off the bat.Here’s a tax prep checklist of the most popular forms and types of information you’ll need to fly through your tax filing (and hopefully be well on your way to a refund!).
It’s one thing to mess up some income info, but the last thing you want is for there to be a snag in your taxes because you slipped up on some of the basic personal data you need when you’re filing.Make sure you have your name – your legal name – and your address. You’ll probably be asked if you’ve moved during the previous tax year, so you might need that info, too. Also make sure you have your Social Security number.It’s also good to have that same information for your family members. If you’re filing jointly with your spouse, for example, you’ll need his or her Social Security number as well.Finally, make sure you have your bank account information handy if you’re going to have money deducted from or deposited to your account to pay your taxes or receive your refund. Anything to help get your money back faster is always good, right?Again, this is basic information that you probably already have and/or know off-hand. Still, it’s better to be safe than sorry, and you don’t want to hit a speedbump right when you’re getting started.
Last year’s tax return isn’t required, but it could be helpful, especially if your tax situation hasn’t really changed all that much. You’ll be able to recall the forms you used, the deductions you made, and so on, which can speed up this year’s filing process, or at least give you something to double check against for a little peace of mind.
If you work for an employer (as opposed to being freelance or contract) you’ll get a W-2 form. This is probably the most common tax form, and it’s arguably the most important you’ll need because it has all of your base earnings information for the year.Your W-2 shows how much you got paid in the past year. It’ll also show the various taxes you’ve had withheld: Social Security, income, Medicare, and so on. Most of the other information you provide, like deductions, will use these earnings to calculate how much you’ll end up owing (or receiving from) Uncle Sam.
You don’t get a W-2 for doing freelance work – that’s only for salaried employees of a company – so if you’ve been a freelancer, you’ll have some additional (or at least different) forms to deal with.
If you got paid more than $600 for work from a client, they’ll send you a 1099-MISC form. 1099s in general cover non-salary income, and 1099-MISC will have your freelance income. It’s similar to a W-2 in that it shows the money you received from work, but it doesn’t break out the individual taxes.You won’t receive a 1099-MISC if you made less than $600 from a client, but you’ll still need to report that money when you file your taxes. Even if you make $600 or more, you don’t have to attach a 1099-MISC to your filing, so if your client fails to send you the form, don’t panic.
Since income tax isn’t withheld automatically for freelancers like they are for salaried workers, you’ll need to calculate it yourself. Use Form 1040-ES to pay it.
For Social Security and Medicare tax, Schedule SE will help you figure out what you owe.
Hey, a form that actually helps you save money!A Schedule C covers "profit and loss from business," and you can write off expenses related to your business such as travel, advertising, vehicle expenses, and so on.And speaking of those deductions…
You can write off a lot of things as a freelancer. Like, a lot of things. So keep track of your expenses throughout the year and make sure you have those records with you when it’s time to file.In addition to things like business dinners and office items, don’t forget that you can deduct vehicle mileage! The IRS uses a Standard Mileage rate to determine how much each mile costs (you could deduct 57.5 cents per mile in 2015, for example, but it’s only 54 cents this year). A mileage log of when you used your vehicle for work can end up saving you a lot of money.
A lot of what you have to pay depends on what you do with your money throughout the year. You’ll use other 1099 forms to account for additional non-salary income you’ve made.For example, 1099-Rs covers "Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc." If you got money from a retirement product, you’ll get a 1099-R.A 1099-INT form covers interest income from banks and other financial institutions, and 1099-DIVs are for dividends received from investments.You’ll get these forms from a bank or brokerage or any other party where you received the money. You might have money in a lot of different places – a savings account in one place, a mutual fund in another, and so on – so be sure that you have all of your non-salary income sources accounted for.
Did you know that you can lower your taxable income if you include mortgage interest paid in your filing with a Form 1098? Or use a 1098-E form for student loan interest payments?IRA contributions and charitable donations can lower your tax bill, too.You can get tax credits using a Form 5695 for installing solar panel systems on your home.There are a lot of things that fall under either deductions or tax credits.Deductions will essentially take the amount of money you made and lower that so you don’t pay as much. In an extremely basic example, say you had $100,000 that was being taxed at 10%; you’d owe $10,000 in taxes. But then deductions (like student loan interest payments) lower your taxable income to $90,000. Now at 10% you’re only paying $9,000, and you’ve been paying your student loans! Good job!Tax credits, on the other hand, lower the amount you pay more directly. If you get a $600 tax credit, you’ll pay $600 less on your final tax bill.You should head over to the IRS’ website to see a full list of deductions and credits that are available to you. There are a lot there, and it’ll be easier to file if you have an idea of what you’re looking to deduct than trying to do it on the fly as you file.Obviously the exact forms and information you’ll need will depend on your individual circumstances. You won’t need to worry about charitable contribution deductions if you know you haven’t donated anything, for instance, and if you’ve strictly done freelance work then you can ignore the part about W-2s.In any case, a little prep work beforehand can save you a lot of time – and, if you come across some deductions you weren’t aware of, maybe even a little money.
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