Start Now To Prepare For Next Tax Season
By Sylvia Cannon
Summer 2007
April 15 has come and gone, and you probably think you can put tax preparation out of your mind until next year. But your procrastination may wind up costing you time and money.
Although tax season is over, preparing for the 2008 tax season really should have begun on Jan. 1, 2007. Otherwise, all the hours you spend at tax time rummaging through kitchen drawers, dressers and unmarked files may cost money and time away from doing other (more pleasant) things.
Getting organized isn’t easy. You can hire someone to come to your home and help you get organized, but who has that much disposable income? You can appear on one of those “get-organized” cable shows, but do you want the rest of the free world to see what a pack-rat you really are?
Or you can just do it yourself. Start by determining the records you need to keep and those you can trash. If you’re in doubt, remember that it is better to have it and not need it than to need it and not have it.
Specifically, what should you keep? Think about your last tax return. What documentation did you need to complete and file your taxes? Those are the papers you need to keep: anything and everything that proves income and expenses. Did you itemize in 2007? What changes have occurred that might affect your tax situation?
Keep a record of all expenses and receipts as proof of payment. For example, if you are claiming travel expenses to and from doctor’s appointments, keep a record and receipts of travel expenses in an envelope marked “medical travel expenses.” A receipt can be a cash receipt, financial account statement, credit card statement, canceled or substitute check, or statement of account if payed electronically or through a payroll deduction. A statement of account should include the date, signature and reason for payment.
Do you own your home or intend to purchase a home and plan to claim a deduction for your mortgage interest payment? Keep all documentation and paperwork associated with the purchase, as well as interest and tax documents, and records of home improvements. Keep them for as long as you own the home.
Consider this example of a typical married couple anticipating their tax preparation needs for 2008. They file jointly and plan to itemize their tax return. They own a home and live in it with one dependent child during at least a portion of 2007. One spouse is a servicemember while the other takes post-high school classes and earns a bit of money on the side. They receive income from dividends or interest. Here is a list of most of the documents they’ll need.
Personal information: full name and Social Security number for both spouses.
Others who may belong on your return: full names, dates of birth and Social Security numbers; child care records, including the provider’s ID number.
Education payments: bills from your educational institution or anything else that itemizes what you paid or received loans for, versus what was covered by scholarship or other financial aid; Forms 1098-T and 1098-E, if you have them; records of scholarships and fellowships received.
Employee information: Forms W-2.
Savings and investments: income from interest and dividends (1099-INT, 1099-OID, 1099-DIV); income from sales of stock or other property (1099-B, 1099-S); dates of acquisition and records of your cost or other basis in property you sold.
Itemizing deductions: Forms 1098 or other mortgage statements; amount of state/local income tax paid (not withheld); real estate and personal-property tax records; cash amounts donated to houses of worship, schools, other charitable organizations; records of non-cash charitable donations; amounts paid for health insurance and to doctors, dentists, hospitals; number of miles driven for charitable or medical purposes; expenses related to your investments; employment-related expenses – dues, publications, tools, uniform cost and cleaning, travel, job-hunting expenses; self-employment information (if applicable).
How long should you keep your records? According to the IRS, you should keep them until the statute of limitations runs out for the specific tax return. The statute of limitations is the period of time for which you may claim a refund or the IRS can assess additional taxes – generally, three years from the due date of the tax return. Just to stay on the safe side, however, you may want to keep the records for at least seven years.
You should now be motivated to get organized for the next tax season. Remember to have a place for everything and put everything in its place so you’ll save yourself time and money next April 15.
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Sylvia Cannon, a retired Air Force logistics officer and spouse of an active duty Army officer, has been an H&R Block office manager for six years. H&R Block’s 12,500 retail tax offices nationwide can assist servicemembers with any tax or financial concern. Call 1-800-HRBLOCK or visit www.hrblock.com to find the location nearest you.
