The holidays are over, and instead of greeting cards filling your mailbox, W-2s, K-1s, and 1099s are arriving. These signal the beginning of tax season and the time to start gathering all the information needed to send to your accountant. If you tackle the task now, you’ll be able to identify what you are missing before the deadline.
Do you get a Tax Organizer from your accountant? It is a helpful guide to what is needed, especially since it lists what was submitted to the IRS last year. Here are our tips for using your Tax Organizer efficiently. Note: Tax Organizers vary from accountant to accountant, so what follows are suggestions.
- Gather all tax-related documents and receipts
- Have a supply of paper clips and a pen or pencil nearby along with some sticky notes (to flag missing items)
- Work through the Tax Organizer one page at a time
- What needs to be filled in? Do it
- Missing something? Flag it
- What document is needed? Paper clip it to the back of the page that references it
Top Tax Preparation Challenges
The Medical Expenses section is often overwhelming because you need to have lots of documentation. Before you tackle this page, discuss with your accountant whether you need to fill it out. If you don’t have enough unreimbursed medical expenses to clear the 10% threshold (in 2019), you can probably skip that part. Remember that circumstances change, so some years you may be above the threshold and others below.
If you do have a lot of medical expenses, go down line-by-line and put in a number (or a zero), recording medical expenses, insurance reimbursements, health insurance premium payments (except if paid through an exchange), doctors and dentists, hospitals and clinics, lab and X-ray fees, payments for long-term care (aides, for example), eyeglasses and contact lenses, medical equipment and supplies, miles driven for medical expenses (or the cost of cabs and public transportation to and from), ambulance fees, lodging and any other medical and dental expenses.
Hint: for prescriptions, ask your pharmacy to print out a list of last year’s prescription purchases; use the total number in your organizer.
Do you have Long Term Care insurance? List what you paid for premiums—especially because in some states they are tax-deductible, separate from the medical deduction. Each spouse’s premium may be deductible individually.
Charitable Contributions: make a list of all contributions and the amounts, but the total on the worksheet, but paper clip the list to the page. Keep a folder of all the thank you letters you’ve received from each charitable organization, especially those for gifts over $250. Include in the folder copies of checks and credit card statements showing how the gift was made, in case you get audited. If you have given away clothes or books (noncash deductible items) and have receipts, clip them to the page for your accountant to review.
Under Miscellaneous Deductions, investment expenses can be advisory fees that should have been reported to you. If not, ask your financial advisor(s).
Whether you are receiving individual 1099s for stocks or receive 1099(s) from your portfolio(s), paper clip all interest income & dividend income 1099 forms to the page requesting that information.
For sales of stocks, securities, and other investment property, the challenge will be if you own them outside of a portfolio. You will need to know the date of purchase and purchase price as well as the date of sale and sale price.
Hint for this year: move everything into a portfolio with an advisor and let the advisor keep track of your purchases and sales.
Still overwhelmed? Eddy & Schein Group stands ready to help you sort, research, and present to your accountant a well-organized package of materials.