It’s tax season. Now is the time we scramble to find forms and receipts. We wonder if we should have done something to help in lowering our taxes. It’s a good time to plan for 2012 while pulling together the information to complete the 2011 return. There are some things we can still do for 2011 and certainly now is the time to start preparing for 2012.
Let’s talk about organization. At a minimum you should have a folder, envelope, or yes, even a shoe box to store pertinent receipts as you get them. But going through that pile of receipts will take time, cost money (if done by your CPA), and likely result in errors. The IRS, your CPA and tax software all step through tax preparation from income to deductions to payments. Your files should be organized the same way.
• Keep pay stubs until you receive a W-2.
• Keep bank statements and brokerage statements until you receive a 1099.
• If you are self employed keep all income and expense records related to the business separate from your personal expenses. Vehicle expense records should be maintained during the year. Keep a notebook in the vehicle to record business usage.
• If you rent part of your home or use it for your business, records of expenses to maintain the home should be kept.
• If you rent property, keep those income and expense records in its own folder.
If you’ve maintained income records all year you can verify that you received each W-2 and 1099 that you should have. Having the IRS discover missing income forms could significantly change your return.
The best way to save supporting documents is in folders or envelopes by category – medical expenses, charitable contributions, education expenses, etc. At a minimum, keep all receipts, write an explanation on the receipt and save. Although the IRS doesn’t require copies with the return, you must be able to provide supporting documentation for every deduction if you are audited. If you don’t have the documentation, the deduction could be disallowed.
OK. You’ll make a resolution to get organized for 2012, but you weren’t for 2011. What now? Start digging. Make sure you have a W-2 for each job you had. Make sure you have a 1099-INT from each of your banks, a 1098 from your mortgage company. Look at the 2010 return. Are there items reported on the return that occurred again in 2011? Do you have the form? Look for deductions. Did a child start college? Did you pay for child care? What about medical costs? Chain pharmacies can provide reports of prescription costs. Were you looking for a job? Job search expenses may be deductible. Did you buy a house or refinance a mortgage? Did you contribute to an IRA? This is one step you can still make and impact your 2011 taxes. The more you find, the more accurate your return.
Committing to treating tax preparation as a year round activity could save you money (no lost deductions). It will certainly save you time and anxiety when facing the filing deadline.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.