Well-organized tax records can make the tax return preparation process significantly easier for everyone involved. As you prepare to submit your tax documents, please take note of the following important details:
Gather the annual tax forms for all of your investment accounts. Typically, Form 1099 will be mailed to you directly from your custodian; usually by mid-February at the latest. It includes information on dividends and interest, and gain/loss information on securities sold throughout the year. Sometimes corrected 1099s are generated and mailed out later. If you misplace your hard copy of Form 1099, you may access it online at your custodian’s website any time after it has been published, using your regular custodian website credentials. See Modera Tax Center for latest updates on custodian mailing dates.
The IRS has specific regulations for reporting foreign financial assets and virtual currency. Please disclose any holdings of these types of funds.
In addition to your investment or retirement income, you may receive a Form W-2 or K-1 that indicates the amount of income reported to the IRS. For other types of income, such as alimony received, you may need to determine the amount to report from bank statements. If you own an interest in a passthrough entity, you should receive Schedule K-1 in mid-March or later. For publicly traded partnership interests, you can check http://www.taxpackagesupport.com to see if the information is available. Some K-1s can come as late as mid-September, so an extension may be required. Be sure you’ve received a K-1 for each passthrough entity you own prior to filing your taxes. Cost Basis on Securities Sold
In most cases, Form 1099 will contain cost basis information. However, if you have sales with no basis reported on Form 1099, you will need to provide this information to your tax preparer.
These are direct reductions to taxable income that commonly include deductible IRA contributions, alimony paid (applies to divorce or separation instruments executed before 1/1/2019), Health Savings Account (HSA) contributions, SEP, SIMPLE or other self-employed pension plan contributions and self-employed health insurance payment records. Please include any documentation you receive relating to these items.
If you itemize deductions rather than taking the standard deduction, you will need to gather source documents to support the amounts reported on Schedule A. These documents may include proof of mortgage interest paid (Form 1098), investment interest expense, real estate and personal property taxes paid, medical expenses, and charitable contributions.
Tax credits are a direct reduction of your tax bill. You may be eligible for credits such as the American Opportunity Credit if you have a child in college, or the Residential Energy Credit if you have made any significant “green” home improvements. If you purchased an electric vehicle in 2024, be sure to include any dealer certification that your vehicle qualifies for the “EV” credit. Additionally, if you obtain health insurance coverage through the Marketplace, include a copy of Form 1095-A with your tax documents.
Other potential credits to consider include the Child Tax credit, the Earned Income Tax credit, and the Dependent Care credit, depending on your circumstances. For more information on notable tax credits and deduction updates for this year, visit the IRS website.
This is also a good time to review and update the cost basis of investment property and your personal residence. Improvements made during the year may have increased the basis, so be sure to collect and organize those valuable receipts. You should provide your tax professional with detailed records of any improvements made to your investment property. Additionally, remember to retain records of investment purchases, property purchases, and improvements for at least seven years after the property or investment is sold.
Federal and state taxes withheld will appear on Form W-2 or 1099. However, if you made quarterly estimated tax payments during 2024, you will need to provide details of these payments. Errors in reporting estimated tax payments can lead to adjustment notices from taxing authorities, so it’s important to double-check the amounts, payment dates, and the tax year to which they apply.
It’s important to update your tax preparer on any significant changes that occurred over the past year, such as change of address or occupation. While these may seem minor, they are details that must be accurately reflected on your tax return. Additionally, changes in household, like welcoming a new family member of having someone move in with you, could potentially result in tax credits in certain circumstances.
Everyone’s tax situation is unique. The items mentioned above serve as a starting point for developing a document-gathering process tailored to your specific needs and life circumstances. By starting to organize it now, you might find that tax season doesn’t have to be your least favorite time of the year.
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