Organizing Your Tax Information for Individuals - Income & Earnings
There are tax organizers available in the office and paper supply departments of many stores; but a binder with pockets inserted works equally well if not better if you use the pockets to sort your information into logical categories. Some professional tax preparers provide an organizer for their clients to follow but with or without a professional organizer you will still need to gather up the necessary information and again I suggest doing that in a large three ring binder throughout the year. For the best sorting order I suggest that you sort according to how the data flows on the individual 1040 tax form as follows:
First provide personal data for each family member- full names and social security numbers and birth dates. This is particularly important for newly married couples and for new arrivals in the family.
Next, you should file information regarding earned income items. This is a good place to file paycheck stubs throughout the year as well as W-2 Forms and 1099 Forms for non-employee compensation work received in January. Even if you include paycheck stubs you must still include W-2 Forms. You may also have forms from state or local tax agencies for refunds that you received on previously filed tax returns that would also be appropriately placed here.
Then you should file 1099-INT and 1099-DIV forms that you receive in January from any savings and investments. These are related to income as they document the earnings that you received throughout the year in interest and dividends. Including an additional pocket in your binder here for your monthly bank statements can be very helpful for complete documentation and reference purposes. This would also be a good place for Pension and Social Security Statements as well as any statements you received if you collected unemployment benefits during the year. And last but not least in this pocket is the documentation of any other income such as jury duty earnings statements, gambling winnings statements for the big bucks you won at casinos and any other gambling winnings and other random income documentation that you receive.
Now hang in there with me, you’re half way there and you’ll be so proud of what you’ve learned about this very important taxing topic when you reach the end of the article.
In the next pocket of your organizer you should place anything you receive that pertains to adjustments to income such as statements for tax credits for student loan interest and qualified tuition statements for yourself and eligible dependents; IRA contribution statements; Alimony Payments made; and documentation if any on penalties on early withdrawal of savings.
Just two more pockets to go. A very important item to include that relates to income is information relative to the sale of investments and or property. When you sell investments you receive a 1099-B from the broker with information on the proceeds of the sale. Sometimes the broker statement also includes the information on the original cost or basis of the purchase of the investment and dates acquired and when that’s included it makes it possible to calculate a gain (income) or a loss (reduction to income) on the sale of the investment. If the broker does not include the cost basis information, you as the taxpayer must provide information for the return based on your records of your purchase date and what you paid for the investments when you purchased them or if you received them by gift or inheritance the related documentation you received on cost basis.
Last but not least - self-employed business owners must calculate their income on a separate Schedule C that is part of the individual tax return filing and rental income and S-corp income must be calculated and reported on Schedule E, and farm income is calculated and reported on a separate Schedule F. The information required to calculate these schedules should be discussed with your tax preparer or accountant based on the nature of your business and your business activity documents and bookkeeping records.
So – give yourself a great big round of applause. You made it through the entire article and have taken a giant step toward understanding Just the Basics on the Taxing Subject of Taxes. If I were you I think my mission would now be to find the perfect big fat binder and pocket inserts and begin making your future tax preparation less taxing.
You can get organized, you really can!
I hope you're enjoying Tax Facts on the Taxing Subject of Taxes!
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