2021 Tax Preparation Checklist

It seems to roll around every year right as we forget about it, tax season.

A notoriously stressful time of year that has people frantically gathering paperwork, account statements, and receipts. This year we want to help make it a little easier so here’s our full checklist for what you need for a stress-free tax season.

Gather Your Personal Information

There are a few things that should be at the top of your list for tax prep including:

• Last year’s taxes, both federal and state return – While you don’t strictly need these to file, they are really helpful for refreshing you about what you filed last year and what documents you used.
• Social security numbers for you, your spouse, and dependents – don’t forget that dependents can include elderly parents.

Find Income Statements

You will also need any documents that confirm any money you received in the last year including:

• W2 Forms – Your employer must provide you with a W2 by January 31 so make sure that you keep an eye out for it. They can provide it electronically or as a physical document through the mail.
• 1099 Forms – Each 1099 ends with a different suffix depending on the type of payment you received. 1099s cover contract work, investment earnings, dividends, and broker-handled transactions.
• Business income – you may also have a K1 statement from a business partnership return or a profit & loss statement for a Schedule C on your income tax return.

Deductions

Deductions can help lower your overall tax bill, but you have to make sure you have the proper documentation to apply them. Documentation helps protect you if you are ever audited and it can reduce your tax bill by helping you remember what to claim.

A lot of people assume you have to itemize to get the full benefits from some deductions, but that’s not necessarily the case. Those are listed in on Form 1040 and there are even more deductions available if you itemize expenses on Schedule A. If that was a lot of jargon, don’t worry. We can help you at MCK.

Here are some of the most popular deductions:

• Retirement account contributions – You can deduct contributions to a traditional IRA or self-employed retirement account. Just make sure that you are staying within the contribution limits.
• Education expenses – Think tuition and fees students paid and the interest paid on a student loan. You need Form 1098-T and/or 1098-E to claim these deductions.
• Medical bills – Medical costs can provide some tax savings but only if they total more than 7.5% of the adjusted gross income of most taxpayers. In some cases, you may need a spreadsheet to determine the cost or you can ask your insurance company if they have most of this information related to your co-pays readily available.
• Property taxes and Mortgage Interest – If your mortgage payment includes escrowed property taxes, it will be listed on the Form 1098 your lender sends you and you can claim that as a deduction.
  Charitable donations – Make sure you keep all the receipts to your donations so you can claim them at tax time. Most non-profits will provide you with a donation receipt.
• Classroom expenses – School teachers or eligible educators can deduct up to $250 spent on classroom supplies.
  State and Local Taxes – The applicable deductions vary by locale, but there are a handful of deductions you can take on a state and local level. Ask us what additional deductions may be applicable to you.

Credits

Like deductions but bigger, credits are dollar-for dollar cuts on any tax you owe, but as with deductions, you need proper documentation to claim them.

• American Opportunity and Lifetime Learning Credit – These are education related credits that you will need Form 1098-T to claim.
• Child Tax Credit – The standard Child Tax Credit is worth up to $2,000 per child dependent. If you have added to your family via adoption, you might be eligible for additional credits.
• Retirement Savings Contributions Credit – Also called the Saver’s Credit, this lets you claim credits for contributions made to a 401K or similar employer-sponsored plan.

Payments

Many people have income taxes withheld from their paychecks to cover taxes owed and that amount will be in your W2. You might have also made federal estimated tax payments during the year, so you will want to have that amount handy while you are doing your taxes too.

While this checklist covers the most common tax preparation needs, every filer is different, and you will need to tailor this list to fit your needs.

Have questions or want someone else to take care of the heavy lifting? MCK has you covered. Reach out today!