Tax Time Has Arrived! Tips for Getting Ready for Your Tax Appointment

Article Highlights:

• It is time to gather your information for your tax appointment
• Choosing your alternatives
• · Sales of property
• · Depreciation
• · Where to Begin?
• · Accuracy Even for Details
• · Marital Status Change
• · Dependents
• · Some Transactions Deserve Special Treatment
• · Sales of Stock or Other Property
• · Gifted or Inherited Property
• · Reinvested Dividends
• · Sale of Home
• · Purchase of a Home
• · Home Energy-Related Expenditures
• · Identity Theft
• · Car Expenses
• · Charitable Donations

You, like most taxpayers, probably dread the task of pulling together your records to prepare for your tax preparation appointment, but the effort usually pays off in the extra tax you might save! When you arrive at your appointment fully prepared, you’ll have more time to:

• Consider every possible legal deduction;
• Evaluate which income reporting and deductions are best suited to your situation;
• Explore current law changes that affect your tax status;
• Talk about tax-planning alternatives that could reduce your future tax liability.

Choosing Your Best Alternatives - The tax law allows a variety of methods of handling income and deductions on your return. Choices when preparing your return often affect not only the current year, but future returns as well. Topics these choices relate to include:

• Sales of property - For the year in which you sell property and arrange the sale so that you receive payments on the sales contract over a period of years, you can sometimes choose between reporting the entire gain on the return for the sale year or over several years as you receive payments from the buyer.
• Depreciation - When you purchase certain property used for business, generally the cost is written off (depreciated) over several years, but in some cases the cost can be deducted all in one year.

Where to Begin? Preparation for your tax appointment should begin in January. Right after the New Year, set up a safe storage location, such as a file drawer, cupboard, or safe. As you receive pertinent records, such as W-2 forms and 1099s reporting interest, dividends or other income, file them right away, before you forget or lose them. Make this a habit, and you’ll find your job a lot easier on your appointment date. Other general suggestions to prepare for your appointment include:

• Segregate your records according to income and expense categories. File medical expense receipts in one envelope or folder, mortgage interest payment records in another, charitable donations in a third, etc. If you receive an organizer or questionnaire to complete before your appointment, fill out every section that applies to you. (Important: Read all explanations and follow instructions carefully. By design, organizers remind you of transactions you may otherwise miss.)
• Call attention to any foreign bank account, foreign financial account, or foreign trust in which you have an ownership interest, signature authority, or controlling stake. We also need to know about foreign inheritances and ownership of foreign assets. In short, bring any foreign financial dealings to our attention so we know if you have any special reporting requirements. The penalties for not making and submitting required reports can be severe.
• If you acquired your health insurance through a government Marketplace you will receive Form 1095-A, issued by the Marketplace that will include information needed to complete your return.
• Keep your annual income statements separate from your other documents (e.g., W-2s from employers, 1099s from banks, stockbrokers, etc., and K-1s from partnerships, S Corporations and Trusts). Be sure to take these documents to your appointment, including the instructions for K-1s!
• Write down questions so you don’t forget to ask them at the appointment. Review last year’s return. Compare your income on that return to your income in the current year. A dividend from ABC stock on your prior-year return may remind you that you sold ABC this year and need to report the sale, or that you haven’t yet received the current year’s 1099-DIV form.
• Make sure you have social security numbers for all your dependents. The IRS checks these carefully and can deny deductions and credits for returns filed without them.
• Compare deductions from last year with your records for this year. Did you forget anything?
• Collect any other documents and financial papers that you’re puzzled about. Prepare to bring these to your appointment so you can ask about them.

Accuracy Even for Details - To ensure the greatest accuracy possible in all detail on your return, make sure you review personal data. Check name(s), address(es), social security number(s) and occupation(s) on last year’s return. Note any changes for this year. Although your telephone numbers and e-mail address aren’t required on your return, they are always helpful should questions occur during return preparation.

Marital Status Change - If your marital status changed during the year, if you lived apart from your spouse or if your spouse died during the year, list dates and details. Bring copies of prenuptial, legal separation, divorce or property settlement agreements, if any, to your appointment. If your spouse passed away during the year, you should have a copy of his or her trust agreement or will available for review.

Dependents - If you have qualifying dependents, you will need to provide the following for each (if you previously provided us with items 1 through 3 you will not need to supply them again):

1. First and last name
2. Social security number
3. Birth date
4. Number of months living in your home
5. Their income amount (both taxable and nontaxable). If your dependent is your child over age 18, note how long the child was a full-time student during the year.

For anyone other than your child to qualify as your dependent, they must pass five strict dependency tests. If you think one or more other individuals qualify as your dependents (but you aren’t sure), tally the amounts you provided toward their support vs. the amounts they and others provided. This will simplify a final decision.

Some Transactions Deserve Special Treatment - Certain transactions require special treatment on your tax return. It’s a good idea to invest a little extra preparation effort when you have had the following transactions:

• Sales of Stock or Other Property: All sales of stocks, bonds, securities, real estate and any other property need to be reported on your return, even if you had no profit or loss. In most cases brokers will provide a detailed list of transactions for the year along with the Forms 1099-INT and 1099-DIV they issue. If the sale isn’t included on the broker’s report, list each sale, and have purchase and sale documents available for each transaction.

Purchase date, sale date, cost and selling price must all be noted on your return. Make sure this information is contained on the documents you bring to your appointment.

Don’t forget to include information and documentation about digital asset transactions, including non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stable coins. This includes (not a complete list) if you:

• Received digital assets as payment for property you sold or services you provided;
• Received digital assets because of a reward or award; and
• Sold or exchanged digital assets for other digital assets.

Unreceipted cash donations put into a “Christmas kettle,” church collection plate, etc., are not deductible. For clothing and household contributions, items donated must generally be in good or better condition, and items such as undergarments and socks are not deductible. You must keep a record of each item contributed that indicates the name and address of the charity, date and location of the contribution, and a reasonable description of the property. Contributions valued under $250 and dropped at an unattended location do not require a receipt. For contributions above $500, the record must also include when and how the property was acquired and your cost basis in the property. For contributions above $5,000 and other types of contributions, please call this office for additional requirements.

If you have questions about assembling your tax data prior to your appointment, please give this office a call.