With everything 2020 has thrown at us, the last thing you probably feel like doing is thinking about taxes. But, like it or not, tax season will come, and the better prepared you are, the sooner you can shake off that stress and spend your time doing what you love instead. And since there’s nothing worse than getting close to finalizing your taxes only to realize you are missing an important document, we’ve created a tax-preparation checklist for you to follow to help make sure you have all your ducks in a row.
Gather Your Personal & Income Information
You’ll probably start receiving various tax documents in the mail or virtually once the calendar flips to 2021, so instead of letting them sit in a pile on your counter, create an organized system for the following.
Income Information
- Form W-2: These are issued by employers and show your wages and tax withholdings. They are supposed to be mailed by January 31.
- Form 1099-MISC: These report income you have received as an independent contractor or freelancer. You should receive one from each person or company that pays you.
- Form 1099-INT: This form will show any interest you have earned.
- Form 1099-R: This form reports income received from annuities, IRAs, or pensions.
- Form 1099-DIV: Any dividend income you earn is reported on this form.
- Form 1099-B or 1099-S: You will receive these if you have any income from the sale of property or stock.
- Form 1098: You will get this from your mortgage company reporting the interest that you paid.
- Form 1098-T: This reports payments of qualified tuition and expenses.
- Form 1095-A or 1095-C: These forms report your healthcare coverage for the year and your premium tax credit, if applicable.
- Schedule K-1 (Form 1065, Form 1120S, or Form 1041): This reports income for a partner, a shareholder, or an income beneficiary of an estate or trust. The Schedule K-1 normal deadline can be as late as April 15th.
Personal Information
If you want your tax-filing experience to be painless, you’ll also want to make sure that you have all of your and your dependents’ personal information available, such as:
- Social Security numbers and birthdates
- Copies of last year’s tax return (helpful, but not required)
- Bank account number and routing number, if you wish to have your refund deposited directly into your account
Income-Reduction Documents
- Form 1098-E for student loan interest paid, or loan statements for student loans received
- Form 1098-T for tuition paid or receipts from the institution you or your dependents attend
- Receipts for any qualifying energy-efficient home improvements
- Records of IRA contributions made during the year
- SEP, SIMPLE, and other self-employed pension plan information
- Records of medical savings account (MSA) contributions
- Moving expense records
- Self-employed health insurance payment records
- Alimony you paid
Organize Your Documents For Itemization
Also, if you itemize your deductions, you’ll need records to include your totals and provide proof.
Deductions And Credits
- Childcare costs: provider’s name, address, tax ID, and the amount paid
- Education costs: Form 1098-T, education expenses
- Adoption costs: SSN of the child; records of legal, medical, and transportation costs
- Form 1098: Mortgage interest, private mortgage insurance (PMI), and points you paid
- Investment interest expenses
- Charitable donations: cash amounts and official charity receipts
- Medical and dental expenses paid
- Casualty and theft losses: the amount of damage, insurance reimbursements
- Records/amounts of other miscellaneous tax deductions: union dues; unreimbursed employee expenses (uniforms, supplies, seminars, continuing education, publications, travel, etc.)
- Records of home business expenses
Taxes Paid
- State and local income tax
- Real estate tax
- Personal property tax
Consider Possible Changes
Okay, so that’s the nitty-gritty of what you’ll need in front of you to thoroughly fill out your tax return. But there are also a few things to think about that could impact how you file, such as any changes that have occurred this year. Did you add another child to your family? Did one of your children start college? Did you start taking withdrawals from a retirement account? All of these changes need to be reflected on your tax return but won’t show up on prior returns.
More than personal changes, there may be changes to federal or state tax law that you should be aware of. The Tax Cuts and Jobs Act tax reform bill of 2017 is still being implemented, and the new SECURE Act could also affect your 2020 tax situation. A knowledgeable financial professional can help you understand any tax law changes and how they affect you.
Make A Plan For The Future
While it’s important to get your 2020 tax return filed properly, it’s just as important to look at the bigger picture of taxes in general. Are you optimizing all of the tools available to you to limit your tax liability? Are there steps that you could take now to minimize future taxes? Do you have a plan for your tax refund that will further your overall financial goals?
Taxes are complicated, to put it lightly, so it helps to work with a professional who understands them if you want to maximize the opportunities available. An experienced financial professional can help you with tax planning in light of your overall goals and financial plan.
If you want to be proactive about tax planning and you don’t have a trusted advisor yet, our team at Nichols Financial Strategies would love to help you experience confidence in every aspect of your financial plan. Reach out to us at 559-440-6999 or by email at matt@nfstrategies.com to schedule an appointment and get started!
About Matt
T. Matthew Nichols is founder, CEO, and wealth advisor at Nichols Financial Strategies with more than 20 years of experience in the financial industry. He spends his days serving business owners and families, specializing in helping those in the agriculture industry proactively prepare for the unique challenges they face in a rapidly changing economy. Matt is an Accredited Investment Fiduciary® (AIF®) and holds his FINRA Series 7 and 63 securities registrations with LPL Financial and his California State Life & Health Insurance license. He’s also pursuing his ChFC designation and is dedicated to continuing his education and staying abreast of the latest financial trends and strategies. Matt’s mission is to help his clients transfer wealth from one generation to the next and work toward achieving their goals so they can spend more time on what they love most. Matt was born and raised in the California Central Valley and resides in Fresno with his wife, Christy, and their two daughters, Holly and Jillian. He enjoys golf, traveling, skiing, and spending quality time with his family. To learn more about Matt, connect with him on LinkedIn.