Filing your annual tax return can be stressful and challenging, especially if you file jointly, work out of state, or have childcare expenses or investment accounts. Depending on your financial situation, filing your taxes could require multiple documents and careful calculations to be sure your tax burden or refund is accurate. Following a checklist as you assemble the necessary paperwork to prepare and file your taxes can be extremely helpful.
1. Gather Documents
Collect the paperwork you’ll need to file your taxes. You may receive some important tax documents in the mail, but others you may need to gather or print out. Typical tax documents include W-2s and other official tax forms, receipts for qualified tax deductions such as childcare expenses and charitable donations, interest statements from financial institutions, as well as your ID information. Gathering these documents before you begin your taxes can speed up the filing process.
Here are some documents you’ll typically need in order to complete your taxes:
- Previous year’s tax returns: You may need to reference information from last year’s tax forms as you complete this year’s forms.
- W-2s and 1099 forms: Your W-2 forms are used to report your employment income, while 1099 forms are used to report your non-employment income, such as interest income, unemployment benefits, and dividends from investment accounts.
- Government-issued ID: You may be asked to include your driver’s license number or non-driver ID information for identity verification purposes.
- Social Security Number: You’ll need to provide your own SSN and the social security numbers of any dependents you may have. If filing jointly, you’ll need your spouse’s SSN as well.
- Receipts for qualified tax deductions. If you’re eligible to claim medical expenses, childcare expenses, or work-related expenses, you should gather any documents showing what you paid. You should also gather confirmation of any charitable donations you made during the year, as well as any property taxes, mortgage interest, or student loan interest you paid out. If you purchase health insurance on your own, and not through an employer, you can typically claim those expenses as well.
- Bank account information: If you’ll be paying your tax balance via an electronic payment, or if you’ll be receiving a tax refund via direct deposit, you’ll need to provide the routing number and account number of the bank account you’d like to use.
2. Calculate Income
Your total tax obligation will depend on your income. You’ll need to refer to your income statements (W-2s and 1099s) in order to correctly enter all income received during the year. In most cases you won’t have to submit the actual physical documents, but the IRS recommends saving them in a safe place in case you’re asked to provide them at a later date.
Here is an overview of the income documents you’ll need:
- W-2s: Your employer must issue you a W-2 form by mail or electronically before January 31st. This form will detail your taxable income and your tax withholdings for the year.
- 1099 Forms: There are several different types of 1099 forms, and each one details non-employment income received from a specific source. There are 1099s for unemployment income (1099-G), income from contract work (1099-NEC), retirement income (1099-R), dividends (1099-DIV), interest income (1099-INT), and payments from third parties like eBay (1099-K). In some cases, your 1099s may be mailed to you, or you may be alerted to them electronically and need to download them.
- Additional income: You must report all income received during the year, even if you don’t receive an official form that verifies how much you received. Be prepared to report additional income from sources like rental properties, trusts, jury duty, craft sales, or occasional side jobs like tutoring, babysitting or dog walking.
3. Determine Qualified Deductions
Most taxpayers are eligible to take a standard deduction that reduces your taxable income. The amount of the standard deduction depends on your filing status. The standard deduction for 2022 tax returns is $12,950 for single taxpayers and married individuals filing separately, $19,400 for heads of households, and $25,900 for couples filing jointly.
However, in some cases you may be able to reduce your taxable income even further by itemizing your deductions. Collect paperwork that verifies all of your eligible deductible expenses. You can then calculate what your deduction would be if you itemized and determine if it’s greater or less than the standard deduction.
Possible tax deductions include:
- Mortgage interest
- Retirement account contributions
- Property taxes
- Health insurance
- Medical expenses
- Childcare costs
- Tuition and other educational expenditures
- Student loan interest
- K-12 educator purchases
- Charitable donations, including cash and non-cash gifts
- State and local taxes
- Federally declared disaster losses
4. Determine Eligible Credits
It also may be possible to reduce your tax liability dollar-for-dollar with various credits. If eligible, verify that you have the correct documentation and proof for each credit you want to claim, keeping in mind that some credits depend on factors like your income and filing status.
Some possible tax credits include:
- Earned income tax credit: Eligibility and credit amount will depend on your income, marital status and how many children you have.
- Solar tax credit: A credit equal to 30% of the cost of installing a residential solar energy system.
- Child and dependent care credit: You could potentially decrease your tax liability with the nonrefundable child and dependent care credit. Eligible taxpayers could receive a credit of up $3,000 for one qualifying dependent, or up to $6,000 for two or more qualifying dependents.
- American opportunity tax credit: Eligible college students and parents with eligible dependents could receive a tax credit of up to $2,500 spent on tuition, school fees, books and other qualifying college expenses.
5. Stay Organized
Since filing taxes requires precision and accuracy, make the process easier with regular organization throughout the year. Ideally you should designate a file or folder for all of your tax-related documents. Store receipts, financial statements, and other tax-related paperwork as soon as you receive them. Then, you can quickly sort the documents before you file your taxes. Otherwise, you will have to spend time searching for all of your necessary documents when tax time rolls around.
It's also important to retain your tax documents for at least three years. This way, you can prove your income, deductions, and credits in the event you’re audited by the IRS. Less than 1% of all tax returns were audited in 2022, but it’s good to be prepared. Otherwise, you could face large fines and intense stress.
Tax season rolls around like clockwork every year, so it's smart to prepare yourself ahead of time. Using a tax preparation checklist can help streamline the filing process. Of course, every taxpayer’s situation is different, so it’s always wise to consider guidance from a tax professional or financial advisor. Best of luck, and happy filing!