SAVING INCOME TAX RECEIPTS **
A) BE PROACTIVE
1) If you itemize, use hanging files labeled by year, with sub-folders for specific types of deductions.
2) Keep blank copies of Schedule A and Schedules C and D, if applicable, to familiarize yourself with them, or view online. Forms can be obtained from the links below:
If there is a "tax phobia" issue, examine forms at non-tax times. It might help with de-conditioning.
3) Breathe a sigh of relief when tax time comes around, or even file early! Save those shoe boxes for shoes!
B) SCHEDULE A FILERS, Itemized Deductions:
IRS link to PDF: https://www.irs.gov/pub/irs-pdf/f11040sa.pdf
1) Sub-folders for Deductions might include 1) Mortgage and Home Equity Interest 2) State, local, and property taxes 3) Medical and dental, see #2 below 4) Self-pay medical insurance 5) Health Savings Accounts (HSA) contributions 6) Charitable donations 7) Certain job expenses 8) End of Year (EOY) brokerage statements. These might include: W2s, IRA contributions or distributions, interest and dividends. 7) Miscellaneous deductions
2) Set up a password account on your insurer's web site to view "Explanation of Benefits (EOB)" forms and claims. EOBs can be obtained electronically (paperless) by request. Whenever you receive an EOB, check for accuracy, e.g., were all services provided.
If you qualify for a medical deduction and have health insurance, request your insurance company to send hard copy “Claims History” reports for the whole family from the preceeding year. These can be requested in January. They summarize all annual out-of-pocket expenses (OOPs), that is, your or family co-pays and co-insurance.
The last line on the last page is key, as it shows the annual totals. The "Patient Responsibility" column shows total payments for the entire tax year. Thus, it is unnecessary to save all those medical bills, EOBs, or prescription drug receipts, if that is comfortable for you; or else keep them until you receive the Claims History report. HOWEVER, those without insurance do need to save their own medical bills and records.
Major Medical and Prescription Drug benefits might have separate Claims History forms. Make sure to get both.
3) Annual Dental expense records are obtained from your dentist.
4) Eyeglasses and optometrist visits are deductible, so keep receipts.
C) SCHEDULE C FILERS, Profit and Loss from Business:
IRS link to PDF: http://irs.gov/pub/irs.pdf/f1040sc.pdf
1) Deductible Business Expenses, listed on p. 2 of Form 1040 C, are self-explanatory.
2) Subfolders might include: a) Income b) Business credit card statements c) Cost of goods sold d) Professional licenses and education e) Business travel, including auto mileage f) Health insurance premium payment records, which are 100% deductible for Independent Contractors.
3) If filing a Schedule C, one must also file a Form SE for your portion of Social Security. It will automatically download to accounting software along with Schedule C.
4) If there are a lot of expenses, you might be proactive, and keep track and categorize them during the year with Quicken, Quickbooks, or a like program. There is a learning curve, so... if you're stuck in a hotel room with nothing to do, it could be a good time to learn. **Joke**
D) SCHEDULE D FILERS, Capital Gains and Losses:
IRS link to PDF: https:www.irs.gov/pub/irs-pdf/f1040sd.pdf
All IRS-mandated information is found on the End of Year Brokerage account.
1) Reported equity sales require maintaining the original Trade Confirmations or Brokerage records for costs and proceeds, from any and all financial institutions. The EOY shows Dividends, which are reported as income.
2) When filing a Schedule D, Form 8949 is also needed. Both forms can be downloaded to accounting software.
Note: The above is by no means meant to be interpreted as tax advice. Please take your organized files to your professional tax advisor. If there is an hourly fee, it could save money. If you do your own taxes, the IRS website is helpful and user friendly. On phone calls, IRS agents are polite, helpful, and, most of all, patient.