Do you know that the penalty for failing to file your taxes on time is 5% of unpaid tax per month? You are also required to pay a minimum of $135 dollars or the total amount of taxes you owe the government (whichever is lower) if you file your taxes 60 days late.
According to an IRS report, over 5% of Americans failed to file their taxes in 2018 and owed the IRS over $130 billion in penalties, interests, and back taxes.
Without the right tax checklist, filing your taxes can be stressful, but it doesn’t have to be with the right preparation. Here are a few tips to add to your tax checklist.
- Ensure Your Personal Information Is Correct
The IRS requires you to fill in the right personal information, social insurance, and birth date. You should also include accurate information about individuals covered in your tax returns. These individuals include your spouse, children, and other dependants.
- Don’t Forget Your Income Information
To manage your taxes, you need to document all your income sources. These may include businesses, employment, and investment income. Below are the types of income forms required when filing taxes:
- W-2 forms for you and your spouse’s employment income information
- Income received from alimony
- Forms SSA-1099 for social security benefits
- Forms 8606 and 1099-R for IRA and pension distributions
- Various 1099 forms for investment income
- Form 1099-C for income from property sales
- 1099-G forms for income from unemployment benefits and local and state tax refunds
Ensure you have the correct IRS Form for your specific income source. Other income sources such as gambling winnings, jury duty, Medical Savings Account (MSA), and scholarships should also be reported. To document your income, you can create pay stub using an online pay stub generator.
- Income Deductions Should Also Be Included in Your Tax Checklist
Income deductions help you reduce your taxable income amount. This will reduce the amount you owe in taxes and increase your refund. Below are some common types of tax deductibles:
- Your student loan interests
- Health insurance payments for self-employed individuals
- Amount paid for a pension plan for self-employed individuals
- Tax-deductible alimony paid
- Charitable donations
To claim the above deductions, you must provide documents for proof. More deductions are listed on Schedule A Forms, while the benefits are listed on Form 1040.
- Take Note of Tax Credits
Unlike tax deductibles that reduce the total amount of taxable income, tax credits are deducted directly from the amount of tax you owe. However, you will need documents to claim them. Below are some common tax credits:
- Education credits such as tuition fees
- Child tax credit for children under 17 years old
- Saver’s credit or retirements savings contributions
Taking note of your credits can help you get a refund of your tax withholding. Credits can be refundable or non-refundable. If your refundable credit is more than the taxes you owe, you can get the difference back as a refund.
- Take Note of All Paid Taxes
Ensure you take note of all taxes you have paid throughout the year. These include local and state income taxes, personal property, and real estate taxes. To avoid tax overpayment, it’s essential to document all paid taxes correctly.
Are You Ready to File Your Taxes?
Although managing your taxes can seem intimidating and complicated, there are steps you can take to make the process easier. Start by taking into account the above tax checklist. Ensure you collect all the necessary documents and information required to file your taxes.
Now you know what to do as you prepare your taxes this year. Check out our other posts for more informative tips and guides.