What Do You Need to File Your Taxes? Your Tax Prep Checklist

It’s the most wonderful time of the year, friends. Yes, welcome to the joys of tax season!

The tax checklist below can be used to help you find and organize the tax documents that you’ll need to prepare and file your taxes.

Personal Information

• Your social security number or tax ID number

• Your spouse's full name and social security number or tax ID number

I f you have a dependent or dependents, here’s what you’ll need to gather:

• Dates of birth and social security numbers or tax ID numbers of your dependents

• Childcare records (including the provider's tax ID number) if applicable

• Income of other adults in your home

• Form 8332 showing that the child’s custodial parent is releasing their right to claim a child to you, the noncustodial parent (this may or may not be applicable to you)

Records of Your Income

If you were employed during the year:

• Forms W-2

If you received any unemployment benefits:

• Unemployment, state tax refund (1099-G)

If you received income from being self-employed:

• Forms 1099-MISC that you receive for work you or your business performed.

• Schedules K-1 (usually your business’ accountant will prepare these)

• Records of all expenses — check registers or credit card statements, and receipts. If you have been keeping track of these things through bookkeeping, your expenses should get reported to your annual profit and loss statement.

• Business-use asset information (cost, date placed in service, etc.) for depreciation. If you have been keeping track of these things through bookkeeping, some of this data will show up on a balance sheet and some of the data your accountant will help you figure out.

• Office in home information, if applicable. What’s the square footage of the space you use for business only? How much is your monthly rent or mortgage?

• Record of estimated tax payments (Form 1040ES), if you made any.

If you earn Rental Income from renting a property:

• Records of income and expenses

• Rental asset information (cost, date placed in service, etc.) for depreciation

• Record of estimated tax payments made (Form 1040ES)

If you’re retired and you have Retirement Income from your retirement assets/accounts:

• Pension/IRA/annuity income (1099-R) - You can usually find this online.

• Traditional IRA basis - The amounts you contributed to the IRA that were already taxed

• Social security/RRB income (1099-SSA, RRB-1099)

If you earned interest or dividends from your Savings & Investments  

• Interest, dividend income (1099-INT, 1099-OID, 1099-DIV) - You can usually find these online.

• If you sold stocks or other assets/property, how much income did you earn from these sales. This information is usually reported on a 1099-B, 1099-S

• If form 1099-B doesn’t have the price you paid of the assets you sold, you’ll need to track that down.

• If you have reimbursements from a Health Savings Account or long-term care reimbursements (1099-SA or 1099-LTC)

• Expenses related to your investments - What fees do you pay for the privilege of investing your money?

• Record of estimated tax payments made (Form 1040ES), if you made any

Other Income & Losses. These may or may not be applicable to you:

• Gambling income (W-2G or records showing income, as well as expense records)

• Any income from jury duty records

• Hobby income and expenses

• Prizes and awards

• Trusts

• Royalty Income 1099 Misc.

• Any other 1099s received

• Re cord of alimony paid/received with Ex-spouse’s name and SSN

 

Deductions

If you own a Home:

• Forms 1098 or other mortgage interest statements

• Real estate and personal property tax records

• Receipts for energy-saving home improvements

• All other 1098 series forms

If you made any Charitable Donations:

• Cash amounts donated to houses of worship, schools, other charitable organizations. Usually the 501c(3) you donated to will provide you with receipt or letter that reflects the amount you donated.

• Records of non-cash charitable donations

• Amounts of mi les driven for charitable or medical purposes

Medical Expenses

• Amounts paid to doctors, dentists, hospitals

Health Insurance - The forms and certificates will be automatically sent to you, so just make sure to keep them with all your tax docs.

• Form 1095-A if you enrolled in an insurance plan through the Marketplace (Exchange)

• Form 1095-B and/or 1095-C if you had insurance coverage through any other source (i.e . an employer, insurance company, government health plan such as Medicare, Medicaid, CHIP, TRICARE, VA, etc.)

• Marketplace exemption certificate (ECN) if you applied for and received an exemption from the Marketplace (Exchange)

If you had any Childcare Expenses:

• Fees paid to a licensed day care center or family day care for care of an infant or preschooler.

• Wages paid to a baby-sitter.

• Don't include expenses paid through a flexible spending account at work.

If you had any Educational Expenses:

• Forms 1098-T from educational institutions

• Form1098-E if you paid student loan interest

• Receipts that itemize qualified educational expenses

• Records of any scholarships or fellowships you received

State & Local Taxes or Sales Tax

• Amount of state/local income tax paid (other than wage withholding), or amount of state and local sales tax paid

• Invoice showing amount of vehicle sales tax paid

If you made any contributions to a Retirement Account & Other Savings

• Form 5498-SA showing HSA contributions

• Form 5498 showing IRA contributions

• All other 5498 series forms (5498-QA, 5498-ESA)

Job Expenses & Tax Prep Fees

• Employment related vehicle expenses (tolls, mileage, gas, maintenance, license, property tax, interest expense, parking)

• For educators in grades K-12, receipts for classroom expenses

• Employment-related expenses (dues, publications, tools, uniform cost and cleaning, travel)

• Job-hunting expenses

• Record of moving expenses not reimbursed by employer

• Amount paid for preparation of last year’s tax return

If you suffered a Federally Declared Disaster

• City/county you lived/worked/had property in

• Records to support property losses (appraisal, clean up costs, etc.)

• Records of rebuilding/repair costs

• Insurance reimbursements/claims to be paid

• FEMA assistance information

• Check FEMA site to see if my your has been declared a federal disaster area

How To Do Your Taxes (The Freelancer Edition)

Photo by Pana Vasquez

Freelancing can have it's perks: choosing who you want to work with, having the freedom to take a midday nap and, of course, the joys and challenge of taxes.

If you've made pretty good scratch as a freelancer, then you've probably worried about the tax bill that may come due on April 15.

It's not uncommon for new freelancers to do well only to discover their profits get wiped out by taxes.

Here's a list of the best things you can to do prevent taxes from harshing your mellow. 

1. Work with a tax professional

Doing your own taxes might seem virtuous, but it has risks. If you aren’t familiar with the tax code, it’s possible to misinterpret it. Who knows the potential impact of your limited knowledge? You might take deductions that don’t apply to you or miss ones that do apply to you.

Humans still do it better than robots. And although it might be more expensive to hire a tax pro, a great one is definitely worth it.

2. Work with someone who understands your business

It's important to work with tax pro who is familiar with how your business runs. If they've never worked with anyone in your industry before, make sure to explain how things work. 

This information will impact the deductions you take or the tax advice they give. For example, let's say a graphic designer has contractors working for her. But after explaining to her accountant that the contractors work out the designer's office, on the designer's  computers and they're expected to be at the office at specific times, the accountant advises that the contractors should actually be classified as employees.  

3. Get a basic understanding of what you need to pay and how much.

Yes, it’s fucked up that as freelancers and small business owners, all of the responsibility falls on your shoulders to understand your tax situation. You don’t have to be able to reference tax code, but you should at least have a very basic understanding of what taxes you need to pay and how much.

A common tax for all freelancers is the concept of the self-employment tax. I say concept because the self-employment tax is a bit of a misnomer. Here in the states, all employees and employers pay social security and medicare taxes. Employees have these taxes deducted from their paycheck and employers pay them each time they pay their employees.

In 2017, the social security tax was 12.4% on up to $127,200 of income and the medicare tax was 2.9% on all income. A self-employed person must pay the employee and employer’s share of taxes, while an employee only pays for half the social security taxes (6.2%) and half of the medicare taxes (1.45%). If it sounds like a shit deal, that’s why as a freelancer, you often charge more than you would as an employee and the silver lining is that the employer portion is deductible.

4. Keep your business and personal separate

Make sure your business has its own checking accounts, savings accounts and credit card that are separate from your personal accounts and cards. Make sure to only use the business accounts for business expenses. Make sure that your business income is going into your business checking account.

Yes, even if you don’t have a formal entity formed, like an LLC or S-corp. Run your sole proprietorship like a goddamn business.  

Having things separate makes it easier for you, your accountant and/or your bookkeeper to understand what’s happening in your business. It’s easier to sort and organize all the information, which should make it easier to file taxes and make financial decisions within your company.

5. Save for taxes

As an employee, your taxes are automatically deducted from your paycheck; when you’re self-employed, you are the responsible party. If you have an S-corp, you can set yourself up on a payroll, just like an employee is setup. Using a payroll service will ensure your taxes being withheld and paid.

If payroll isn’t an appropriate option, setting up an income tax savings account is a solid way to make sure you’re saving for taxes. Talk to your account about how much they think you should be saving and each time you pay yourself, set aside a percentage for taxes in your tax savings account. 

It's generally accepted that if you save 30% of your income, you should have enough for taxes. But make sure to chat with your tax pro in case 30% is too much or too little. 

6. Pay quarterly taxes

Legally, you’re supposed to pay taxes as you earn them. If you don’t, you’ll owe a penalty.

So make sure to pay your taxes quarterly. You'll avoid paying a penalty and you can avoid having a high tax bill (assuming, of course, the reality lines up with the projection). You want to have your tax pro help you figure out what you should be paying each quarter.

They may do a projection up front and give you all the details like how much you owe and when it’s due. They might even prep little vouchers for you that have who to write the check to, how much to write it for and when it’s due. (Or, you can sign up on the IRS’s Electronic Federal Tax Payment System to have the payments automatically withdrawn from your account.)

Alternatively, your accountant might want to review your books every quarter and let you know what to pay after examining the financials. 

Here’s a pro tip: Make sure you put the payment due dates in your calendar. Here are the due dates for quarterly tax payments in 2018:

• April 16, 2018 for income earned in quarter 1 (Jan 1, 2018 - March 31, 2018)

• Friday, June 15, 2018 for income earned in quarter 2 (April 1 through May 31)

• Monday, September 17, 2018 for income earned in quarter 3 (June 1 through August 31), and

• Tuesday, January 15, 2019 for for income earned in quarter 4 (September 1 through December 31). 

7. Know what expenses are deductible

The IRS states that you can deduct business expenses that are “ordinary and necessary” in your industry. For example, a musician may be able to write off her Spotify monthly subscription because it’s part of her job to stay current with music. Whereas, a freelance business consultant might have a harder time arguing that her Spotify subscription is both ordinary and necessary in her industry.

Your accountant will most definitely be able to give you a breakdown of the things you are able to write off and pay for through your business.

8. Keep track of your income and expenses

The most sophisticated way to keep track of your income and expenses is through a bookkeeping software like Xero or QuickBooks.

If you’re just starting out, you can’t afford to outsource bookkeeping and the thought of bookkeeping makes you want to scratch out your own eyeballs, that’s ok. You can totally create a hodgepodge system using a spreadsheet, photos of receipts and a server, like Dropbox or Google Drive.

If you’re going to do that, here’s a pro tip: use each month as a reference point. Keep each month’s invoices, income, receipts and expenses grouped together so you can easily reference it while not being too overwhelmed with too much data. 

If you can’t pay all the taxes that you owe, you should still file and pay what you can so you can reduce the penalties and interest you’ll owe. Talk to your tax pro about calling the IRS to figure out your payment plan options are. 

There's plenty of scary shit in the world and taxes doesn't have to be. It's all about working with a great tax pro, being consistent and staying engaged.