Many taxpayers with simple deductions and investments can file on their own, and there are many places to find free tax help for those who choose to do so. However, even those who hire someone to prepare taxes will benefit from keeping proper records.
Tax Records
Whether it is a a hanging file, shoe box, or paper bag, set aside one place to keep expense receipts that might qualify for an income tax deduction. These would include, but are not necessarily limited to:
- Monetary charitable donations
- Receipts for donations of used clothing or other items provided to organizations like Goodwill or the Salvation Army
- Non-reimbursed medical care and prescription charges, including premiums paid for coverage.
- Job-related expenses such as the cost of uniforms, journal subscriptions, dues paid to professional organizations, or non-reimbursed mileage.
- Non-reimbursed losses due to theft or damage
- Childcare expenses
- College tuition for a dependent
- The cost of making money, such as commissions paid to a stock broker.
- IRA contributions
- Expenses related to any non-W-2 related income (see below) such as contest/submission fees for writers; supplies for making crafts; etc.
Some expenses, such as medical, are not deductible unless they exceed a certain percentage of income. However, it makes sense to save receipts in case a family member does incur unusual expenses sometime during the year or someone loses a job and ends up paying insurance premiums under COBRA or for individual coverage.
Also keep receipts for any income for which a W-2 is not provided, such as gambling income at a casino,contest winnings, money made from a hobby like woodworking or selling paintings or crafts.
W-2 and 1099 Forms
Make a list of all investments and keep it updated. This would include:
- Interest bearing checking and money market accounts
- CDs
- Mutual Funds
- Individual Stocks and Bonds
- IRAs or other retirement plans
- Redeemed government Savings Bonds
Sometime around the end of January 1099 forms for each investment should start arriving in the mail. Check them off the list as they are received and keep them in a separate folder or with receipts from the prior year. A W-2 form for each employer for whom the individual worked should also be received. Anything not received by mid to late February should be followed up.
Tax Help
Many communities provide free tax help for those who need it. In addition the IRS website offers information such as frequently asked questions, who qualifies for the Earned Income Tax Credit, and who qualifies for IRS Free File, a system where taxpayers under a certain income level can use tax software free for step-by-step tax filing.
Tax Refund and Rapid Refund Loans
Some tax preparers now offer Rapid Refund Loans or RAL. These preparers calculate the tax refund due, then write the taxpayer an instant check for that amount. These are actually loans against the taxpayer's refund and are often predatory, charging high interest and finance fees. Anyone who needs a refund quickly should, instead, consider e-file. This is a system for filing online that provides a much quicker refund. Those without access to a computer can often use libraries, senior centers, or other community organizations with computer access.
Income Tax Preparation Services
Those who can afford it, especially small business owners and/or individuals with complicated investments or real estate holdings, can benefit from tax preparation services, and the cost can be well worth it. Often, however, those qualifying for the biggest deductions and special benefits can't afford paying for help. With proper records tax filing doesn't need to be complicated and free help is available.
For more detailed information, visit the IRS website.
Tax101
Nannette Croce - Nannette Croce is a writer and editor who has worked with online publications for more than ten years, most recently as Co-Managing Editor ...
