Seven Steps for Tax Season

  1. Assemble tax documents. Undoubtedly, you have been inundated with numerous tax forms for the 2017 tax year, including W-2 forms and 1099s. Employers are required to send W-2s to employees by February 1, 2018. Similarly, investors will receive 1099s with the details of their investment activities. Instead of just dumping these in a pile on your tax return preparer’s desk, review them first to ensure their accuracy. In particular, verify the cost basis used to determine the tax ramifications of your securities transactions.
  2. Verify Social Security information. It’s critical to provide correct Social Security numbers for all dependents, including any children who were born or adopted in 2017. You can claim an exemption of $4,050 for each dependent in addition to a $1,000 credit for qualified children, but exemptions for some high-income taxpayers are reduced under a special phaseout rule. In addition, retirees may owe tax on Social Security benefits.
  3. Organize financial statements. Having your bank and investment statements on hand will make it easier to trace the origin of funds and reasons for deposits or payments. For instance, the IRS might determine that a bank deposit constituted a tax-free gift rather than earned income. Similarly, brokerage statements might indicate a carryforward of a tax loss that can be used to offset capital gains realized in 2017.
  4. Organize business records. The same advice applies to self-employed individuals and small-business owners who are often lax with their recordkeeping. Make sure that expenses can be substantiated through receipts and other documentation. Remember: Because the IRS pays close attention to travel and entertainment (T&E) expenses, including deductions for business use of vehicles, proper recordkeeping for T&E is critical.
  5. Check IRA details. A taxpayer can contribute up to $5,500 to any combination of traditional and Roth IRAs ($6,500 if age 50 or older) for the 2017 tax year. Deductions for traditional IRAs are phased out for active participants (and spouses of active participants) in employer-sponsored retirement plans. Roth IRA contributions are nondeductible but generally lead to future tax-free payouts. Note: The deadline for IRA contributions for the 2017 tax year is April 17, 2018, with no extensions allowed.
  6. Audit-proof charity deductions. Notably, cash and cash-equivalent gifts to charities must be supported by records, including written acknowledgements for donations of $250 or more. For credit card charges, the appropriate statement will suffice. Stricter substantiation requirements apply to certain gifts of property (e.g., an independent appraisal is required for gifts valued at more than $5,000).
  7. Schedule a meeting. The last item on the checklist is arranging an early meeting with your tax return preparer. This can head off potential problems and resolve any discrepancies. Then you can relax, knowing your return is in good hands.