This is part one of a two part series!
When compiling the information you will need to file your taxes, a major thing you will need to figure out is a filing system that works best for you while having the ultimate goal of creating a household profit & loss statement. The purpose of a profit & loss statement is to show you what happened in a given month and came in and what went back out the door. It shows you whether you made a profit or had a loss. Unlike an entity that pays tax on the net income that the business makes, an individual pays tax on the gross income. Therefore, being organized in both manners will ensure that you don\’t pay extra.
Set Up
There are several different software\’s out there that help you manage and categorize receipts and other documents, but what\’s important is to find a filing system that works best for you.
Initially, when setting up a GoogleSheet or Excel Spreadsheet to manage key components of your tax return process, it may be beneficial to create tabs that help you manage each part. You may also want to consider having a spreadsheet that covers the basics of what has changed from the prior year that you will want to make sure is reflected in your tax return or communicated to your tax professional. If you file with a professional, they may provide a questionnaire to gather this information. However, inputting it along the way makes gathering the information much less stressful come tax season.
10 Steps To Organize Your Taxes
- Personal: The first step is determining if you had any major changes in your life that have happened over the last year, such as a move, a relationship status change such as marriage or a divorce, or having a dependent no longer dependent on your taxes. Or maybe you have a newborn at home or have just adopted.
- Healthcare: You\’ll also want to ensure that you receive a 1095-A form showing and representing that you had coverage for the year. Make sure to keep those documents on file in a document so that you can share that with your tax professional. You may also have a 1099-SA for a MSA health savings account. These are becoming very popular. Beyond this, you may have a long-term care contract such as a 1099-LTC. Keep that on file if you are of age and have one of those policies in place.
- Education: When organizing your taxes, you will also want to determine if you withdrew funds from an IRA or 529 for educational purposes and received a 1099-Q. If you did receive one, file it away, and make a note to notify your tax professional.
- Deductions for Donations: You\’ll also want to consider if you donated to an individual exceeding $15k or made any donations to a 501c3 or another type of cause. Make sure you have the proper documentation for your donation to provide for your tax representative.
- Credits: The fifth step to organizing your taxes is determining if you have credits that you can take advantage of, such as owning a home in which you purchased energy star appliances, installed a solar package onto your property, increased your insulation, or bought new windows. Similarly, you may receive a tax credit by owning a qualifying electric or hybrid vehicle or owning land that provides farming credits.
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