In the U.S., filing an annual tax return and paying income tax by April 15 each year is required. Collecting documents well ahead of time and storing them in a secure place is a good idea. Here is a list of what is needed to help prepare for tax season.
January is when people start to receive documents needed for filing taxes. These are usually provided by employers and can include W-2s (a form that shows earnings for the prior year) or 1099s (another type of earnings form).
Names, dates of birth, and social security numbers are required for filing taxes. This information will also need to be listed for any family members (including spouses and dependents). To have a refund electronically deposited to a bank account, gather the routing and account numbers for the account. Any banking employee can help find this information and it is often listed on a financial institution’s website. Refunds can also be issued by check.
The Internal Revenue Service (IRS) will sometimes grant credit for necessary purchases made over the course of the year. These are called deductions and they reduce the amount of income required to be reported. When income is reduced, people may have to pay less in taxes or be able to receive a higher refund. Gather receipts or other proof of purchase for expenses that may be able to be deducted. This is called “itemization.”
Possible sources of itemizations:
- Cost of running a business, such as rent, business supplies, etc.
- Charitable donations
- Medical expenses, including the cost of health insurance
- Childcare expenses
- Educational expenses
- Retirement savings
- Energy-efficient home improvements
Taxes can be prepared by hand and mailed to the IRS. They can also be filed online using tax preparation software. Small business owners often use accountants to help prepare tax documents, because accountants are well-versed in tax law. Some nonprofit organizations help people prepare taxes.
After taxes are filed, it is a good idea to keep all the documents together in a secure location, including receipts and tax returns. Then the following year, the process will be even more simple!
This article is part of a monthly financial literacy column for Amjambo Africa by Riverside Senior Branch Manager Jen Smith and Forest Ave. Assistant Branch Manager Honorine Uwishema. Amjambo Africa is a printed newspaper and website that serves as a conduit of information for newcomers as they navigate life in Maine.