Getting Ready for Your Tax
Preparation
How to Organize Your Tax Documents and Data
It's never too early to begin gathering, sorting and organizing your
paperwork in anticipation of the tax preparation process for your federal and state tax returns.
Don't wait until that tax data organizer from your tax professional hits
the mailbox. The better organized you are, the better job you tax
pro can do for you at the lowest cost.
Here are some of the documents and types of information you need to
collect:
W-2's
Be sure you (and your spouse, if married) have one for each
employer you worked for during the year. Employers have until
January 31st of the following year to mail the forms to you, but sometimes
they don't act in a timely manner. If the employer has gone out of
business or you have moved without notifying the employer of your new
address, there could be a delay in getting the W-2 to you. You
should verify the amounts on the W-2 form with your last pay stub from the
employer. Don't wait until April 10th to look at those W-2s!
If there is an error, as your employer to issue a corrected W-2. If
an error is not noticed until tax preparation has begun, the correction
process will only delay your tax refund.
1099's
You will receive a 1099-INT from every payer of interest and a 1099-DIV
from every payer of dividends. In addition, broker accounts and/or
mutual funds will send you a 1099-B to report the gross proceeds from the
sale of securities and mutual fund shares.
Other 1099 forms that may come to you include 1099-S for the sale of
real estate, 1099-SSA to report Social Security benefits, and 1099-R for
distributions from pensions, annuities and IRA's. State
unemployment, state income tax refunds and state lottery winnings are
reported on separate 1099-G's. If you work as an independent
contractor or serve as a corporate director, an executor of an estate or
trustee of a trust, you will receive a 1099-MISC.
1098
This form reports interest you paid on a mortgage or home equity loan.
If real estate taxes are paid by your lender from an escrow account, that
amount is also shown on this form. If you bought a home or
refinanced a mortgage during the year, the 1098 may also list points paid,
which can be deductible during the current year's tax preparation (home
purchase or improvement). If you refinanced, the points will be
deductible over he life of the loan and should be included in your future
income tax planning.
Schedules K-1
If you were a partner or limited partner in a partnership or a
shareholder in a Subchapter S corporation, your share of income and
deduction items from those entities reported on Schedule K-1. If you
were the beneficiary of an estate or trust during 2002, a Schedule K-1
will be sent to you outlining the taxable income from this source.
Typically, these forms are not sent to you by January 31st. Please
remember there is important tax information on the K-1's and your tax
return cannot be prepared without them.
Purchase/Sale/Refinance of Your Personal Residence
If you buy a home or refinance one, your tax preparer needs to see the
settlement or escrow statement you received at closing. This form
usually has two columns, with one listing dollar amounts related to the
buyer and the other to the seller. If you sold property, you'll also
need to give your tax preparer the original purchase information along
with the sale papers, and data regarding major improvements you
made to the property.
Stock Sales
If you sold stock during the year, your tax preparer will need the
purchase date(s) and purchase price(s) or records of cost basis for each
block of stock. If you sold a mutual fund (even if you "moved" from
one fund to another), please send the year-end statement for each year you
owned that fund -- unless the mutual fund company sent you a document
listing the cost information for all the shares you sold.
Business Purchases
If you bought new equipment for your business or for use as an
employee, send the receipts or contracts. If you purchased or leased
a vehicle for business use, send the papers detailing the price, trade-in
value, sales tax and lease terms. If you traded in an old vehicle,
your preparer will need the cost information and purchase date on the old
vehicle as well.
Mileage
If you intend to claim miles for business use, the IRS states that you
must have a log. This log will have the total miles for the year as
well as notations regarding the business miles driven. Also needed
are all expenses, including gas, oil, insurance, license, repairs.
If you are leasing the vehicle, in addition to the mileage log, you need
to provide the amount of the lease payments. In addition to mileage,
be sure to have receipts for any parking or tolls.
Mileage can also be claimed for medical and charitable purposes, but
again, a log is your best indicator of the deduction that is available to
you.
Reminder: For 2002, the business mileage deduction is 36.5 cents,
charitable mileage is 14 cents and medical and moving mileage is 13 cents
per mile.
Charitable Deductions
Federal tax law requires a written acknowledgement from a charity for
any single contribution of $250 or more. An itemized deduction is
not permitted unless the acknowledgement is received prior to filing the
tax return. For all other contributions, receipts and cancelled
checks are sufficient proof for the deduction. If you contributed
items in kind, such as clothing, toys, household items or automobiles, you
will need an itemized list for amounts over $500 in addition to the
receipt from the charity.
Child Care Expenses
To claim child care expenses paid either to an individual or a day care
center, be sure to send the complete name, address and tax identification
number as well as the name of the child and the amount paid for child care
in 2002.
Hope and Lifetime Learning Credits and Education Deduction
If you have education expenses for yourself or a dependent be sure to
have the amount paid in 2002 for each person and the educational
institution to which it was paid. In most cases, the educational
institution will issue a Form 1098-T listing the eligible amounts paid.
There are different income limits for the various education credits and
deductions, so ask your tax preparer.
New Dependents
If a child was born in 2002 or you completed the adoption process for a
new dependent, please send a copy of the Social Security card as well as
complete name and birthdate. If there are other dependents you are
eligible to claim for 2002, send the same information for them as well so
the personal exemptions can be properly claimed.
