If you’re like me, the most daunting task at tax time is just gathering all the info you’ve collected throughout the year that’s needed to fill out your return (yes, this is even true of tax professionals) . Unless you’re blessed/cursed with the habit of neatly organizing and filing every scrap of paper or email receipt you receive, you’re probably concerned about missing something…and there’s a good chance you might.
Maybe you’ll forget about an account that earned a little interest, or a short-term job you took last spring…although of course if you miss some income the IRS is usually happy to remind you with a nice letter–as well as some interest, and maybe penalties, for the service. Or you might forget an important deductible expense, in which case the IRS is not nearly so reliable in terms of sending you a reminder…instead the value of that deduction may simply be lost forever if not caught.
So here’s a few tips to help you miss fewer income and deduction items when you file…
- The best tip to help not overlook income items is don’t rush to file your return. Yes, just about all employers and banks and other institutions that report income are supposed to provide you with the right forms by January 31. But, the reality is that these items often come late…or they go to the wrong address…or you get a W-2 or 1099 in late January only to get a corrected form a month later. For all but the simplest situations, I generally don’t advise people to file before late-February…the odds are just too high that you’ll wind up missing something and then filing an amendment later, or getting a letter from the IRS about missing income. (Anxious to get a big refund? Next year try adjusting your withholding so you get more money during the year and don’t have to wait for your tax refund.)
- Don’t rely on the postal service. Not to knock the postal service, it’s just that more and more companies are starting to use electronic delivery of tax documents as the default. You might not even notice when signing up for an account that you opted for this…in many cases you have to actively elect to have paper tax documents mailed instead of delivered electronically. So at the end of January, log into your bank accounts and any other financial accounts you have and look for a “tax documents” link. At this time of year, most online accounts will make this information pretty easy to find.
- Once again, go online. Rather than waiting for items to show up in the mail, try some of these resources:
- Own a house or other real estate? If so, start by logging into your mortgage lender’s website. You’ll probably be able to access your Form 1098 that will list your mortgage interest paid and, in some cases, your real estate taxes paid. If your real estate taxes aren’t on Form 1098, try your county website! For example, both Alameda County and Contra Costa County, where I have a lot of clients, allow you to look up taxes paid on a property just by entering the address. Just try googling “lookup property taxes paid [your county name]”. (You may need to add the state if you’re in a county with a common name.)
- Take any classes during the tax year? What about the previous year, or starting right after the end of the tax year? Log into the student finances portion of the school website and look for Tax Form 1098-T. While you’re logged in, you might be able to check your student activity to see when they actually received payments. (I’ve seen numerous 1098-T’s that didn’t get the year right on payments, so it’s good to double-check when the school actually credited your account if you can.) And don’t forget if you have a student loan to check what you paid there. This will appear on Form 1098-E. (Noticing a pattern here? When looking for deductions, Form 1098 is often what you’re looking for.)
- How about car registration? This one may not be a big-ticket item, but it can help get a little extra savings if you’re already itemizing your deductions. You might not have saved the renewal notice with the amount, but in most states you can look it up online. Here in California, you just need your license plate and the last 5 digits of your VIN number to look up the deductible Vehicle License Fee for your vehicle.
- Review your bank and credit card statements. Yeah, this is probably a lot of info to sift through, but this mining exercise often pays off when you find that big expense from a year ago that you’d completely forgotten about. Of course, you can make this process much easier if you pro-actively follow the next couple tips…
- Use separate accounts whenever possible. If you have any type of self-employment income, even just an occasional freelance activity, you really should get an account that’s just for income and expenses from that activity. This will make it much less likely that you’ll miss something deductible. This also applies to rental property. Having a separate account for each business or rental activity is generally a good idea for a variety of reasons, and this is one of them. (However, don’t forget the rule that just because you pay for something with a “business” account doesn’t automatically make it a “business” expense…you still have to be disciplined to only use each account for its intended purpose.) And while it may not make sense to have a separate account for your mortgage, a separate account for charity, etc. it might still make sense to pay all of your deductible expenses (charity, mortgage, medical, etc.) out of a single account if you have multiple personal accounts. Again, this will just make it that much easier at the end of the year to identify your deductions by having them all in one place.
- Finally, use apps. There are numerous apps and online tools like mint.com that allow you to collect all your transactions in one place and quickly categorize them. (Most sites automate the categorization to some degree, but this is usually hit-or-miss so it’s best to review how they’re categorizing things periodically.) Personally, I really like Expensify for my business. Expensify provides a smartphone app that you can use to quickly snap pictures of receipts with your phone and upload them to your account where they’re automatically scanned and categorized. (You can also import transactions from many banks and credit card companies.) What I like about this is that in addition to collecting and sorting your data, the picture of the receipt is stored and you can create a PDF with copies of all your expenses and the receipts to go with them. So if you’re audited and have to provide supporting evidence for your expenses, just print the report with all the receipt copies and get ready for the most quick and painless audit you can imagine.
Lots of accountants and tax software promise to find every single deduction or credit you’re eligible for. But the simple fact is if you don’t bring all the right info to the table, only Nostradamus can actually find everything for you (and last I heard he’s no longer accepting new clients). Hopefully these tips will help you wring out a little extra savings on your tax return…and maybe offer some shortcuts in finding all the right info too.