Are You Prepared for Tax Season?

ID-10015357I’m really excited to post the first article with my new partnership with Transamerica. Look for more articles here on Budget and the Beach, as well as the Transamerica Blog

There are not many things that most people collectively loathe more than taxes. Tax dollars do enable many positive things – libraries and public schools that are free for children to attend being two that immediately come to mind – but it’s hard to remember that come tax season when you’re asked to hand over a really big chunk of money that you worked hard to earn. Throw in the fact that the IRS uses complicated forms that seem to be written in a foreign language, and it’s no wonder people dread thinking about taxes.

But taxes are a part of life, and although you may disagree with how much you have to part with every spring, being prepared for the process will make things a little easier and smoother. The IRS estimates that the average American will spend 4 hours filling out tax forms alone. That doesn’t account for all the time it takes to gather your documents, make sure you have the correct information, and track down the paperwork that employers are supposed to be sending you.

Obviously, there’s no time to waste. Being prepared and knowing what to expect should help cut down on the amount of time you’ll spend on filing your taxes or having a tax professional file on your behalf. A great resource to use when preparing for tax season is Transamerica’s Tax and Distribution Glossary. This glossary is an extremely helpful way to do some of the homework on your own.

To be clear, you should know that I’m not a tax expert, and Transamerica does not provide tax advice. I suggest you consult with a qualified tax professional for guidance about your particular situation. Additional information is available from the Internal Revenue Service (IRS) website.

In addition to the resources available through the Transamerica website, consider these tips to be prepared for tax season this year:

Make Sure You Have the Forms You’ll Need

You’ll save yourself time in preparing the forms if you are prepared before you start. Here are some of the basic forms to look for in the mail at the beginning of the year:

  •  Form W-2 (if you were an employee)
  • Form1099-MISC (if you were self-employed or did contract work)
  • If you were unemployed and collected benefits, you should receive Form 1099-G
  • If you are a homeowner that paid interest on a mortgage, you may receive a 1098 form (since interest paid on a mortgage can be deducted from taxable income)
  • Look for Form 1098-E if you paid interest on student loans

Don’t forget about investments, retirement account withdrawals, or social security income. You may receive various tax forms related to any income you had via these avenues. Health savings accounts (HSAs) will also come with their own tax form.

You may want to list out all sources of income from the previous year in order to keep track of the forms you should be receiving. Check sources off the list as their form comes in, and plan on tracking down any missing paperwork as soon as possible.

Keep all your documents organized in a way that will make sense to you when you go to file your return. If you’re going to a tax professional, you’ll still want to organize all paperwork so your preparer can work through it as quickly and efficiently as possible.

Gather Other Important Documents

If you plan on deducting any expenses or donations from your tax bill, you’ll need to have receipts to prove your expenses and to show that your charitable giving is eligible for a tax write-off.  You may also want to make copies of canceled checks for charitable donations to keep with those receipts.  Additionally, gather up proof of any rebates you are entitled to; for example, if you bought new energy-efficient home appliances, you may be eligible for a rebate on your taxes. But you’ll need to provide the proper documentation in order to claim that extra money.

If you run your own business, you’ll have additional documents to gather up as well. If you chose to utilize a service to help you with your taxes, collect records of your earnings and expenses. If you want to write off your home office, be sure to know the square footage of the space in relation to the rest of your home.

Remember to factor in side-income and any money made from these part-time ventures. Any income from rent counts here! It is important that you retain records substantiating the income that you received. Don’t set yourself up from scrutiny from the IRS for failing to report taxable income. Plan on disclosing the money you made when you file.

Know What Information You Need to Provide

In order to complete the necessary tax forms, you’ll have to provide information about yourself, your spouse (if you have one and are filing jointly), and any dependents you may have. You should gather information regarding these individuals including their full name, social security numbers and relationship to you.

If you have children, you may need to collect records and receipts from childcare providers, or proof of how much money you paid in college tuition last year. You’ll also need to review the income information for any adult living with you to determine if you can claim as a dependent.

Pay Yourself Before Uncle Sam

Tax time is the perfect opportunity to revisit your retirement plan because if you can contribute to a Traditional Individual Retirement Arrangement (IRA) you can potentially receive a tax deduction for the contribution. For tax years 2013 and 2014, individuals under age 50 can contribute $5,500 while those over 50 can contribute $6,500. Keep in mind that tax deductions and contribution limits depend on income and your workplace retirement contributions, so you’ll want to consult your tax advisor.

Start Now!

Do yourself a favor: don’t wait until the last second to prepare for this year’s tax season. Start as soon as possible and devise an organizational system to keep things neat as they arrive. As I mentioned previously, it is important to do your homework so that when consulting with your tax advisor you are as best prepared as possible. A great way to stay up-to-date not only on taxes, but also many financial questions you may have is to take a look at Transamerica’s Learning Center. I’ve found this to be an extremely useful resource when it comes to financial research – better to be as informed as possible.

Utilizing these tips and taking a look at the resources Transamerica has to offer probably won’t make tax time any more fun, but they should save you some stress and confusion. Remember to start early, stay organized, and know what to expect. By doing this, you’ll make filing your taxes just a little bit easier – and who doesn’t want that?

Disclosure: Neither Transamerica not any of its financial professionals provide tax or legal advice. You should consult a qualified tax advisor for questions regarding your particular situation. As required by the IRS, we inform you, that this material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here. This content is sponsored by the Transamerica Life Insurance Company, however all thoughts and opinions are my own. The blog is general information only. The content in this article should not be considered a substitute for individualized tax advice. Consult a qualified tax consultant to help prepare your tax submissions. To learn more about Transamerica read the Transamerica Blog!

Image courtesy of Arvind Balaraman / FreeDigitalPhotos.net

Tonya

Tonya is a video editor and writer living in Los Angeles who enjoys beach volleyball and running. To get the latest updates, be sure to subscribe. Check out her sister site Healthy, Fit, and Frugal.
  • http://brokemillennial.com/ BrokeMillennial

    This is a great break down, Tonya and looks like a valuable resource! It’s my first year filing with freelance work in addition to my regular pay, so I know it will be more of a headache than normal. I mostly just get cranky how much NYC takes in taxes in on top of New York State and Federal taxes.

  • Micros Missions

    I plan on filling out the paperwork as soon as I get the documents coming in. Normally I file right away in February but I may hold off until April this year. I have a feeling based on my rough calculations that I’m going to owe a decent chunk of money. If I need to send that in when I file, then I’ll need the extra time to save up for the check to send in. :/

  • Student Debt Survivor

    This is the first year I have a decent amount of freelance income to report to the IRS and it’s terrifying. I’m hoping that I didn’t make enough that I should have been doing quarterly taxes. This year will be a good learning experience if nothing else.

  • http://deardebt.com/ Dear Debt

    Congrats on the writing gig. I hate doing taxes, and also have some freelance income to report. I don’t think it’s anything notable though. Having your paperwork in order is so helpful!

  • http://www.LisaVsTheLoans.com/ Lisa vs. the Loans

    Great tips! I’ll be sharing this with my friends/fam :)

  • http://caroltoppcpa.com/ Carol Topp

    Tonya, you are so right, record keeping is a huge factor in the success os freelancing (I’m a CPA with lots of freelance clients).

    Your readers might benefit from a few tax tips I share over at http://TaxesForWriters.com. I wrote a mini ebook on tax deductions for writers (that will apply to freelancers and bloggers too!). Grab it on the homepage when you sign up for my email list.

    Freelancers with a home office will also be pleased to hear that the IRS simplified the Business Use of the Home deduction. Now you can take $5/sq ft times the size of your home office. A lot easier than the old method. You can still use the old method if it gives you a bigger deduction.