Tax Filing: Are You Ready?
If you’re like most taxpayers, there’s probably a file or folder in your home filling up with tax forms and receipts. While it might be tempting to put off the day of reckoning, April 15 will be here before you know it. The sooner you start organizing your return, the less stress you’re likely to feel as the tax filing deadline approaches.
“Don’t wait until the last minute when it comes to your taxes,” says Hayden Adams, CPA, CFP®, and director of tax and financial planning at the Schwab Center for Financial Research. “If you can get a head start, you can break the job up into smaller, more manageable tasks and avoid a lot of the usual anxiety.”
Here’s a handy reminder of what you’ll need to prepare, along with some tips for avoiding common mistakes.
Common tax forms
Filing taxes usually goes hand in hand with tax forms—whether paper or electronic. Depending on your individual situation, you may receive a lot of them. That’s reason enough for starting early—if you find you’re missing one, you’ll want to give yourself plenty of time to track it down.
Here are some of the most common IRS forms you may need for your taxes:
- W-2: Your employer will use this form to report your total annual compensation, payroll taxes, contributions to retirement accounts, and other information.
- 1098: This form is used by lenders to report the amount a borrower paid in mortgage interest, mortgage insurance premiums, and any points on the purchase of a new home over the past year.
- 1098-E: Lenders use this form to report interest they charged a borrower on outstanding student loans.
- 1098-T: Payments received for qualified tuition and related expenses, certain adjustments, and scholarship or grant amounts are reported on this form.
- 1099-B: This is the form used by financial institutions to report capital gains.
- 1099-DIV: This is the form used by financial institutions to report dividends.
- 1099-MISC: If you received income from royalties, rents, payments to independent contractors, or other miscellaneous sources, you’ll need to file this form.
- 1099-R: This form is used by financial institutions to report withdrawals from tax-advantaged retirement accounts.
- 1099-INT: Financial institutions use this form to report interest income.
- SSA-1099: The Social Security Administration uses this form to report Social Security benefits you’ve received.
When you receive each form, check it for errors. If you find any, ask the responsible party to correct them as soon as possible, or your tax return could be held up.
Planning to itemize?
If your deductions exceed the standard deduction for 2021—$12,550 for single filers, $18,800 for single heads of household, and $25,100 for married filers—it makes sense to itemize them so you can keep more of your earnings.
That requires proof in the form of receipts and other documentation to support your figures. You won’t need to submit the receipts with your tax return, but you’ll need to have them on hand in case you’re audited by the IRS.
“You don’t want to be caught without them, so be sure to save them for at least 7 years,” Hayden says. And, he adds, “If you lost or didn’t save some of this information, don’t fret—you may be able to use other documents, such as credit card statements or canceled checks, as evidence during an audit.”
Not quite ready?
Sometimes filing on time just isn’t in possible. Unexpected life events can interfere with your ability to file on time, as can delays in receiving tax forms.
If you can’t meet the April 15 filing deadline, you’ll need to file for an extension. As long as you do that, you’ll have until October 15 to complete your return.
But keep in mind, you still need to estimate and pay any taxes you owe by the regular filing deadline to avoid possible penalties.
Finally, be mindful of common issues that often trip up taxpayers. Hayden, who spent eight years at the IRS before joining Schwab, says he saw taxpayers make the same mistakes over and over again.
Among the most common mistakes are underreporting income, misreporting investment gains, claiming unsupported deductions, and entering information incorrectly.
Using tax-preparation software can increase the overall accuracy of your return and help identify all the deductions you may be entitled to. But even the best tax software won’t catch basic inputting errors.
If you realize you filed your return with a mistake or forgot to include something, be sure to file an amended return as soon as possible.
It’s also never a bad idea to call for back-up—consider enlisting a tax professional to answer specific questions, give your return a second look, or even prepare it from start to finish.