When we open our calendars to January, it marks
more than the start of 2010. It also means the
official start of tax season. In reality, however,
many people won't start thinking about their tax
returns until April, when the deadline looms large.
This can be a mistake, says Peter Michaelson,
CPA, a partner in the Eisner LLP's Tax Advisory
Services practice in New York City. In fact,
according to Michaelson, organization throughout the
year is key to smooth tax preparation.
"Keep items such as deductible receipts, bank
statements, W-2 forms, cancelled checks and your
last pay stub of the year in file folders so they're
at your fingertips when you need them," he
suggests. "Though it's now common to handle
finances online, paper is still important."
Even if you haven't been preparing for April 15
the entire year, there are ways to get on the right
path today. The checklist below identifies documents
and figures you'll want on hand as you prepare for
tax filing over the next few months. In addition,
Michaelson recommends the following:
Obtain proper charitable gift
substantiation. Tax law changes in 2008
affected the rules regarding charitable gifts. You
must now have a written receipt or acknowledgment
from the charitable organization to document all
cash gifts greater than $250. "A cancelled
check is no longer sufficient substantiation,"
Michaelson explains.
Your old clothing and other household items (like
furniture and appliances) must be "in good used
condition or better" to be deductible. Tax prep
software programs can help you value these items.
Locate the closing statement from a home
purchase. The Stimulus Plan enacted last
year included a First-Time Homebuyer Tax Credit of
up to $8,000. If you intend to take advantage of
this credit, be sure you have a closing statement
from your attorney or lender that shows the purchase
price and closing costs.
Ask for monthly capital gain and loss
schedules. Investment losses may be used to
offset taxable investment gains and/or a portion of
ordinary taxable income, a tax planning strategy
known as tax loss harvesting. To utilize this
strategy most effectively, Michaelson suggests
asking your broker for monthly schedules.
"This way, you'll have your cost basis every
month, which gives you an understanding of your
position throughout the year and helps you make
decisions about taking capital gains or losses at
the end of the year."