There’s nothing fun about paying taxes. But by taking these five steps in January to organize your paperwork, you could avoid getting frustrated, frazzled, and perhaps befuddled come tax time.
1. Make a copy of your 2020 tax return and attachments. With this to guide your 2021 tax prep, you’re less likely to forget a source of income or a deduction.
2. Collect the tax IDs you’ll need. You’ll want your dependents’ Social Security numbers and the SSN of anyone you employed (e.g., a babysitter, housecleaner, or nanny).
3. Start a file folder labeled “Income.” Put in it the following tax forms you’ll receive in January:
- W-2s and 1099-MISCs from employers
- 1099-INTs reporting interest income
- 1099-DIVs reporting mutual fund or stock dividends
- 1099-Bs reporting brokerage transactions
4. If you itemize, start another folder labeled “Deductions.” Some of the information that goes here will come by mail; the rest you may have to dig up yourself.
- 1098s reporting interest you paid on mortgages and equity loans (also real estate taxes, if included in your monthly mortgage payment)
- A receipt for real estate taxes if you paid them yourself
- A copy of your W-2s showing state and local income taxes you paid
- A receipt for personal property tax from your town or the taxing authority
- Receipts for charitable donations and document your mileage
- Receipts for medical expenses and document mileage
- Receipts for bills incurred while job-seeking
5. Rev up your retirement saving. There’s still time before April to contribute to a Traditional IRA or Roth IRA. For details, search “IRA Contribution Limits” at www.IRS.gov. Don’t have an IRA yet? Ask us about our insured IRA choices.
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