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The following is from one of the newsletters I used to send to my clients each year. It is not meant to be comprehensive but it may help the organized challenged people (OCP) among us.
Most of you are probably sick of reading this paragraph because I include it every year. If you are one of my organized peeps you can just skip this one.
Two things to do here. First is to look at the left side of last year’s tax folder (that’s where I attached all of their source documents) to get an idea of what you may need this year. Next thing is to watch the mail for this year’s versions to be delivered. Again, the general rule is to bring me anything with the letters or numbers 1099, 1095, 1098, W2, or K1. Those are the documents you will want to keep together in a dedicated place. I suggest you should have a financial junk drawer, an old shoe box, shopping bag or whatever. Just don’t let the dog, cat, or kids eat them.
Don’t forget, not all tax docs arrive in January. For example, the consolidated 1099 from you broker dealer may not show up until March. The K1’s from your trusts, oil wells, and etc. may not arrive until after Labor Day. You may need to file an extension. If so, remember an extension to file does not change the last day to pay, which is typically April 15.
Are you or the kids in college? Depending on your income you may be eligible for a tuition credit up to $2500. Clients often told me that they didn’t receive this form in the mail. You may have to access your students form 1098T (T as in tuition) on their internet portal at the school.
Other overlooked items are distributions from a Health Savings Accounts, student loan interest, and believe it or not, estimated tax payments. States require information from your driver’s license or state issued ID cards. Don’t forget social security cards for everybody on the tax return. And of course routing and account numbers for refunds or balances due.
Feel free to add to my list if you have some things that work for you.
Many happy returns,
Dan
I would add Capital loss carry forward data, especially if you’re changing tax preparers. That would be included on last year’s tax return as Rick suggested supplying to your preparer. The capital loss can be used to offset capital gains or up to a $3,000 offset of income. A large Capital Loss can be carried forward for as many years needed to use it.
Good addition. I had one poor client who needed to live to about age 120 in order to use up her losses.
Dan, I’ll add…in the case of capital losses for those filing jointly, the carryover benefit only applies to the spouse who owns the asset, if not jointly owned.
A paper file folder, c’mon that is so 1960s. Today, all the CPA’s around here want people to upload their documents directly to their CPA software. All financial institutions provide access to PDF copies of 1099s and other forms. If folks do get a paper form the CPA wants the client to take a photo with their cell phone and upload it. The easy way to handle this is to create an electronic file in whatever cloud you use and download the 1099’s from the broker directly into your cloud folder. Each year, I create an electronic file at Dropbox such as “2024 Year End statements and 1099s”. As they become available I download them into this file. Then when I do my taxes on TurboTax everything is in one location. There is no paper to have been lost misplaced.
I store that data on the hard drive on my desk top computer, not trusting the security of cloud storage. It’s also on my tax accountant’s computer.
Keeping your data private, and safe, both now and into the future is a tough challenge. There isn’t a single solution. Before your data was sent to your CPA. It existed only on your device, and at its source(s). If your PC hard drive crashed before you could send to the CPA, it would be lost. Likewise, if you only use a cloud, you face risks as well. In my situation, the data held in the cloud is encrypted on my PC before being uploaded, so even if the cloud service had a breach, the data is safe(relatively). If one is truly paranoid he/she can make additional data sets on another HD and store in a safe deposit box. Any long term data storage faces the risk of obsolescence as data storage methods and formats evolve. Imagine trying to get data off of a single-side 5 1/4” floppy disk….
A portal is just another dedicated place to put your stuff. The same diligence is required to make it work. I was an early adopter of the technology, especially and potentially useful for my out of state clients. Unfortunately my non-tech savvy peeps found the process cumbersome and I didn’t have the time to talk them through it.
Dan and everyone, thanks for all of these tips. It is time to start setting things aside for taxes. We had someone do ours last year for the first time in our lives. Chris
Dan, we were considering going to a new CPA for our taxes. One thing that sort of bothered us is that they want a copy of our birth certificates. Have never been asked this before. What are your thoughts and is this something new if switching to a new firm or maybe just that firm in particular?
It’s not unusual to request a birth certificate as part of due diligence. It’s especially important in order to prove that your kids are really your kids. Also, preparers are required to keep copies of these most private documents. That’s why clients also need to perform due diligence to be certain the preparers are legitimate. I’m not sure any entity has more of your private information than a tax preparer.
Thanks Dan for the additional reasoning behind the need for birth certificates, and answering the other question about the one year Identity PIN.
Nice list Dan. In VITA we also recommend that the client bring a copy of the previous year’s return, especially if they were new to the program. You kind of imply that when you recognize they look at the left side of the folder.
Following Kathy’s comment below, we still get many a client that brings in all manner of “itemized deduction” documents – charitable contributions, medical receipts, mortgage documents, property tax receipts, … These may not add up to enough to exceed the standard deduction (although it’s surprising how many people are still unfamiliar with the increased standard deduction), but they may help on state taxes. For example, NJ’s threshold for medical deductions is much lower than the federal limit, so we always enter them to see if they help. The same with property taxes.
One other thing which can trip up a federal return – if you have an identity protection PIN you need it to file. If you voluntarily applied for one, you must retrieve it yourself online. If you were a certified victim of tax-related identity theft, the IRS will mail you a new PIN each year.
We had dinner with some friends last night, and the one friend told us she and her husband had installed solar panels on their home in PA, and were “energy positive” for most of the fall. It reminded that there were federal and state credits for solar panel installation. the credits can change depending on the year of installation, and are nonrefundable, but there can be a carry forward similar to CG losses. I recall doing a return a few years ago for a client who had sizable credits for a number of years.
Rick, I am amazed at how thorough the VITA intake procedures are. They go out of their way to be certain that all the necessary documents are together before the preparers begin the tax return.
Most of my peeps were returning clients so I didn’t harp on bringing in last years return.
Regarding the identity PINs, they are a great idea even for those whose identity has not been stolen.
Rick, it is my understanding that one has to get an identity PIN every year. Is that true?
Open an IRS Online Account: https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin
That is true.
Also, remember your QCDs. I had to educate my tax accountant about that one.
Good one Kathy. The doubling of the standard deduction makes it impossible for most people to itemize deductions. This has made Qualifies Charitable Deductions valuable for those age 70.5 and older. It would be nice if broker-dealers would remind clients, as they do with required minimum distributions.