What Does Your Accountant Need to Do Your Taxes?
Filing a tax return can be one of the most complicated financial matters you have to handle each year, especially if you’re self-employed or own your own small business. Complex codes, room for interpretation and different rules for various situations can make filing your taxes quite an involved process.
Hiring an accountant to help you with your taxes can save you a lot of stress. Here’s what you need to provide to your account to help them properly file your income taxes every year.
1. Identification Information
To prepare your taxes an accountant needs certain identification details from you that can verify that you are who you say you are. Your accountant will need your social security card and the social security number of each member of your dependents. Every year the IRS sends back hundreds of tax returns because the names and social security numbers on the form don’t match.
You should also bring a second form of identification like a driver’s license, military ID, or any state-issued picture ID card.
2. Your Most Recent Tax Return
While you may not qualify for the same tax deductions or write-offs as last year, providing your accountant with the previous year’s return can help them easily access information and calculate certain deductions without having to call you over and over again. If you’re meeting with a new accountant, this could also be a good opportunity to discuss any discrepancies that may exist between previous tax returns and what your best approach should be.
3. Wage and Tax Statements from Employers
Employers will give employees a Form W-2 wage and tax statement. If an employee has not received this document from their employers by January 31, they should check in to ensure nothing has been mixed up.
Independent contractors and freelancers should receive a Form 1099-MISC from all of their clients they worked for throughout the year.
4. Additional Income Statements
Did you obtain other sources of income during the year? Maybe you accrued some interest and dividend income from investments, unemployment income or social security income. If applicable, you should receive statements for each of these sources of income that you will need to take into your accountant too.
5. Documentation of Real Estate Holdings
There are a lot of deductions you might be eligible for, if you have real estate holdings. Bring any documents that pertain to a recent home purchase, proof of paid mortgage or home equity loan interest, or proof of paid real estate and personal property taxes paid.
6. Proof of Expenses
To get your deductions and credits you must hand over documentation that proves your expenses for the year which you’re filing taxes for. Bring receipts, invoices, medical bills, charitable contributions, IRA contributions, job-hunting expenses, mileage logs, educational expenses, self-employment expenses and more to your accountant. It’s better to have too much documentation to provide than too little.
This article also includes information about:
7 Tax Deductions You Didn’t Know About
1) Sales Taxes
There is an option to deduct sales taxes or state income taxes off your federal income tax. This can a save people who live in states that don’t have its own income tax. If you made a big purchase like an engagement ring or car, even if you paid state taxes, the sales tax break might be a better deal. The IRS has a sales deduction calculator you can use to find out what your deduction would be.
2) Health Insurance Premiums
Medical expenses can be very costly but, in some cases, the IRS is sympathetic to the cost of insurance premiums.
In the 2017 and 2018 tax year, deductible medical expenses have to exceed 7.5 percent of your adjusted gross income (AGI) to be claimed as an itemized deduction. The threshold will be increased to 10 percent of AG after 2018.
Self-employed people who are responsible for their own health insurance coverage might be able to deduct 100 percent of their premium cost. This deduction gets taken off your adjusted gross income and not as an itemized deduction.
3) Paying A Babysitter
If you hire a babysitter while you volunteer to work for no pay for a recognized charity, you might be able to deduct the cost.
It was ruled, by the federal Tax Court that it’s okay to list the cost of a babysitter as a charitable contribution on your tax return. If you can prove that babysitter was performing her duties while you were volunteering, you can make this cost a deduction.
4) Teacher’s Tax Savings
Teachers often have out of pocket expenses associated with things they buy for their classroom.
The IRS allows K-12 teachers to deduct up to $250 for materials. This gets deducted from right from their income taxes with itemizing the deduction.
5) Educational Expenses for Any Age
College students are not the only people who can deduct education expenses from their taxes. Graduates pursuing continuing education are covered too.
Students of any age can benefit from the Lifetime Learning credit which takes 20 percent off, or up to $2000, of the first $10,000 spent on higher education. This taxes is not available at higher income levels but does not have an age cap.
6) Self-employed Social Security
7) Job-hunting Expenses
Losing a job and finding a new one can take time and cost money.
Consider the money you spent on getting to and from interviews and the cost of printing resumes.
If you’re looking for a job in the same field, itemize your deductions and your job-hunting expenses have exceeded 2 percent of your adjusted gross income, any approved expense over that limit can be deducted.
What Do Tax Accountants Do?
Tax accountants have two primary roles – preparing tax returns and tax planning.
Whether a tax accountant is self-employed or working for an accounting firm, they specialize in assisting clients with tax return preparations. They meet with clients to gather needed documentation like paystubs, proof of investments and other financial documents. To file these returns, an accountant needs to be familiar with the tax laws. They figure out how much tax is owed by looking at a client’s tax deductions and credits.
Accountants who do tax planning often work with larger companies who work internationally. The objective of tax planners is to develop a strategy for corporations to avoid tax ramifications and minimize income tax. Internal and external accountants are hired by these companies to develop long-term plans to save them money over time.