As we reach the end of the 2021 tax year, now is the time to start sorting your tax documents for an on-time individual income tax return filing. Following is a listing of items to consider when preparing for the preparation of your individual tax return. Each item below could have a significant impact on the amount you must pay to the IRS or the tax refund you are eligible for.
1. Note any changes to your marital status, or the birth (or death) of dependent children. For divorced clients, please submit a copy of the divorce decree and child support agreement.
2. Did you receive or pay alimony payments? Depending on the date of the divorce, this may no longer be a tax consideration.
3. At any time during 2021, did you sell, receive, exchange or otherwise transact any business in any virtual currency?
4. What was the amount of the 2021 Economic Impact Payment, include IRS Notice 1444-C which would indicate the total amount received.
5. While the mandate for health insurance remains, the penalty for failure to maintain minimum essential coverage on the federal tax return has been eliminated. However, many states still require health care coverage. If your health care coverage is through either the state or federal Marketplace, include Form 1095-A with your tax documents.
6. Include all Forms W-2’s with your tax documents.
7. Include any interest income received on Form 1099-INT.
8. Did you have a brokerage account or investments? Include all Forms 1099-DIV and Forms 1099-B with your tax documents.
9. If you sold any stock or assets, be sure the initial cost (or basis) is included with the sale documents.
10. Did you receive funds from a pension or IRA? Include Forms 1099-R with your tax documents.
11. Are you a shareholder in an S corporation or partner in a partnership? Are you the beneficiary of a trust or estate? If so, you will receive a Schedule K-1 for your representative share. We are aware that these generally tend to come later than sooner, so let us know if you are waiting for receipt of a Schedule K-1 and we will extend the individual income tax return.
12. If you received unemployment in 2021 be sure to go onto your state website to download the Form 1099-G. Most states have stopped mailing out this form automatically. The same holds true if you received a state refund in 2021 on your 2020 state income tax return.
13. Are you receiving Social Security? Include the annual statement from the Social Security Administration. If you have an SSA account, this form is available on their website.
Ensure that you report any miscellaneous income you received during the tax year. Failure to report this income could result in being liable for additional taxes owed to the IRS as well as a penalty. Miscellaneous income sources include:
-Income not subject to self-employment tax
Other Income and Expense Considerations
Be sure to report income for other sources, as well as expenses incurred during the year that are deductible and can reduce tax liability. Applicable income and expense considerations include:
-Rental property income and expenses paid on behalf of the property.
-Child and dependent care expenses. Note that you will need to provide a statement with the provider name and address, tax identification number and amount paid.
-Education expenses for either you or a dependent. Allowed deductions include the tuition amount paid as well as other expenses for books, computers, internet, room and board. The name and address and the EIN of the education institution is required for claiming these expenses.
-If you are a teacher in grades K through 12 and working at least 900 hours a year, you may deduct out of pocket expenses for materials and supplies purchased.
-If you received the Advanced Child Credit (which were issued July 15 through December 15), you will need to include the IRS Letter 6419 which will provide the total amount paid.
While many taxpayers are not eligible to itemize deductions due to the increased amount of the standard deduction, following are some expenses to consider itemizing which may provide a better tax benefit:
-Medical and dental costs, including insurance premiums paid during the tax year
-Other tax paid, including real estate, state taxes, or personal property taxes
-Mortgage interest paid on a primary or secondary home
-Points paid on the purchase or refinance of a home
-If you made payments on a student loan or if your employer provided assistance in payment of a student load, you can submit the interest statement from the financial institution along with any payments made on your behalf by your employer.
-Charitable contributions paid with cash and non-cash donations are deductible. You will need to submit a list of all non-cash deductions.
-If you had a casualty loss as a result of a federally declared disaster area, you can claim the total amount of the loss and any payments by your insurance company or government agencies such as FEMA.
-If you made a contribution to your IRA or other deferred compensation plan, you can submit Form 5498 with your tax documents.
This list includes some of the more popular tax items that are reported on tax returns. To learn more about how tax income reporting, credits, and deductions, contact US Taxes, Inc. at firstname.lastname@example.org or 1-609-588-8181.