When the calendar turns over to each new year, I am anxious to get started preparing my tax returns. But since many of the necessary forms do not arrive until January 31st, I am stuck waiting until February to start preparing my tax returns.
This year, I developed a checklist that uses some online resources to help with my tax preparation. Getting an early start will help in two ways:
- Either I get my refund early.
- Or I know I need to pay.
I started by ordering income tax preparation software I’ve used software to prepare and efile my tax return every since since 2000. I’ve used TurboTax, Tax Act, HR Block Online, and to finally arrive at HR Block At Home (formerly TaxCut). It’s inexpensive, high quality, and has good higher-end options without pressuring you too much into buying them.
Early Tax Preparation
In January, before you receive all the forms you’ll need, you can use several online resources to help prepare your taxes. This year, I can use portals for my bank, my payroll, my mortgage service, and even my health insurance. Looking up data online can save time over rifling through piles of papers, especially for onerous tasks like sorting through health insurance claims.
The numbers you’ll need:
- Payroll service – check the last pay stub of 2009 for your YTD gross income and tax deductions. I also need my 401k YTD contributions because my state considers this taxable income.
- Mortage service – check the transaction history for 2009 to summarize the interest you paid on your mortgage. If your real estate taxes are paid through escrow, get those numbers here.
- Health insurance – the portal for my health insurance company (United Healthcare) lets me download my claims history for 2009 into a csv file to easily summarize my medical expenses. The list was not comprehensive, but it saved me literally hours of data-entry time.
- Bank – in addition to the interest you were paid last year, some other numbers to look-up are charitable contributions, property taxes (if not paid through escrow), additional 2008 tax payments made in 2009, and vehicle and personal property taxes. There may be more depending on your situation.
Take advantage of the down-time in January to tackle some of the more menial tax preparation tasks. I filed for extension in 2008 because I put off these projects until the last minute. They can take quite a while, so the earlier you get started, the sooner you can deposit that refund check.
- Itemize material deductions like donated clothes, furniture, books, CDs, etc. Use an online resource like Deduction Pro (through HR Block) to estimate your deductions based on the type and quality of the item.
- Mileage for charity. This is a decent deduction for our family. My wife and I are both serial volunteers and deducting this mileage is important. We don’t keep a mileage log, but we do keep a calendar. Using Google Maps and your calendar, you can figure out your mileage very quickly.
- Itemize health care expenses. If these exceed 7.5% of your AGI. It seems like these receipts are floating all over the house. Even though I could download my claims history, there were a lot of health-related transactions that I’ve found receipts for. This deduction is not for everybody. Your expenses must exceed 7.5% of your adjusted gross income (AGI).
- List your brokerage transactions for the year, including any dividends and capital gains. This could potentially add a lot to your tax burden, so better to tackle it early.
- Make a checklist of the forms you’re waiting on, like W2s, interest statements from your bank, and 1098 from your mortgage company. Make sure the numbers you’re coming up with match those official documents before you file your returns.
Finally, take a couple minutes to lay a better foundation for your 2010 tax returns. I’m always organized about my taxes in the two months while I’m filing but things fall into disarray the rest of the year. The key for me is to make filing as simple and fool-proof as possible. A great filing system isn’t working if you can’t remember or don’t have the time to follow it. So I create two simple “buckets” for the next year.
- Create a file folder for all tax-relevant forms and dump everything in there as it comes in.
- Set-up online expense tracking to automatically categorize and consolidate your bank and credit card statements. Mint.com makes locating deductions and tax-relevant transactions very quick.
The more you get ahead of the ball on your income taxes, the less stress you’re going to feel as April 15th approaches.