By Paula Pant, WiserAdvisor.com contributor
Tax season is upon us again. April 15th may be the official deadline to file, but now is the time to start gathering everything you'll need so that you aren't scrambling in the eleventh hour.
Whether you're planning on doing your taxes yourself or turning your paperwork over to a CPA, there are certain documents you need to make the filing process as easy (and accurate) as possible -- and certain things you need to know to net yourself the biggest possible savings.
Here's your tax preparation game plan.
Getting Your Paperwork in Order
Here's a comprehensive checklist of the paperwork and documentation you may need to file your taxes. Not all of these items will apply to you, but look this list over carefully to make sure you've got the ones that do.
- Social Security numbers and dates of birth for yourself, your spouse (if you're filing jointly) and your dependents
- Records of any alimony paid to an ex-spouse (and his/her full name and Social Security number)
- Tax returns for the past 3 years (if you'd like your CPA to check them for accuracy) Income Documentation
- W-2 forms for yourself and your spouse (if filing jointly)
- Investment and interest income forms, such as interest you paid on your mortgage or student loans (1099-INT, 1099-DIV, 1099-OID, etc.)
- Income records from any cancelled debt (1099-C)
- Income records for sales of stocks or other assets (1099-B, 1099-S)
- Records for any rental property income
- Records of any income for a side business that you run
- Records of Social Security income (SSA-1099) and IRA/pension distribution forms (1099-R, 8606)
- Records of any other miscellaneous income -- unemployment benefits, alimony, gambling income, jury duty compensation, prizes and awards, Health Savings Account (HSA) reimbursements, etc.
Maximizing Your Deductions
Every year, taxpayers miss out on potential deductions they're not even aware they qualify for. Here are 10 of the most commonly overlooked tax credits and deductions you may be eligible for this year.
1. Charitable Contributions
If you made any cash or property donations to charitable organizations like churches, schools and other nonprofits, gather up written proof of those donations (including estimated value of your property donation). You may be able to deduct up to 50 percent of your Adjusted Gross Income (or AGI).
2. State Sales Tax
People in all 50 states are allowed to deduct either their state income tax or the state sales taxes that they pay. However, unless you've made significant purchases in the past year and properly tracked everything, it's probably easier and more advantageous to simply deduct your state income tax. The exception, of course, happens if you live in a state with no income tax.
If you live in a state that doesn't impose an income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming), you can claim a deduction for sales tax you paid over the year. You may not get much ROI from saving every single grocery and convenience store receipt, but you could definitely net the rewards if you bought any high-cost consumer goods like vehicles, major electronics, jewelry or home furnishings.
3. Medical Costs
HSA contributions can be taken as an above-the-line tax adjustment, which means that you can deduct these contributions regardless of whether or not you itemize your deductions. Gather together all records of your HSA contributions. You may also be eligible to deduct qualified medical expenses like doctor's visits and prescription drugs if your total cost for the year exceeds 10 percent of your adjusted gross income (AGI), but you'll need to itemize these expenses, so be prepared to gather up lots of receipts and call up your doctors and pharmacy for printouts of any expenses you may have missed.
4. Work-Related Expenses
If you moved for a new job and weren't reimbursed for moving expenses (or if you're self-employed), you could claim a deduction for your moving bills. You can also claim job-hunting costs, such as resume preparation, and employment-related costs, such as the cost of buying a workplace uniform.
5. Childcare Costs
You can claim childcare expenses for qualifying dependents age 13 or younger (up to $3,000 for one child or up to $6,000 for two or more children) under the Child and Dependent Care Credit -- something many working parents will be happy to hear about, as childcare costs are hardly inexpensive.
6. Caring For An Elderly Parent
If you're in the "Sandwich Generation" that's paying to care for both children and aging parents, you may also qualify for the Child and Dependent Care Credit. The deduction amounts are the same as for childcare costs, but you can apply them to caring for a person of any age who is physically or mentally incapable of caring for him/herself.
7. Educational Expenses
Education credits like the American Opportunity (Hope) Credit and the Lifetime Learning Credit can be subtracted in full from your federal income tax. Whether you're paying for your own secondary education or for a child's, gather up your tuition statements (form 1098-T), student loan interest statement (form 1098-E) and receipts for any qualified educational expenses like textbooks. If you're a K-12 teacher, you can also claim classroom expenses, so gather up receipts for supplies and other materials you purchased for your students.
8. Energy-Efficiency Credit
You can no longer get a tax credit for installing energy-efficient home improvements like insulation and windows, but under the Residential Renewable Energy Tax Credit, you can claim 30 percent of solar-electric property, solar water-heating property, fuel cell property, small wind-energy property and geothermal heat pumps.
9. Earned Income Tax Credit (EITC)
If you had low-to-moderate income in 2014, you may be able to claim this credit, which is designed to help out working people who earned under certain amounts for their household (such as $20,020 AGI for a married couple filing jointly with no children and $43,941 for a married couple finding jointly with one child). To find out if you qualify, visit the IRS's EITC Assistant.
10. Retirement Tax Credit (Saver's Credit)
Also for low-to-moderate income earners, the Saver's Credit allows you to claim a credit of 50 percent, 20 percent or 10 percent of your IRA contributions (up to $2,000 for individuals and $4,000 for married couples filing jointly).
Before you start diving into your taxes, spend a few hours making sure you have proper paperwork in place. The IRS has the right to ask for your documentation, so keep your files organized and store everything in a safe place.
Gathering the necessary paperwork holds the added benefit of making sure you don't miss any legitimate write-offs. By maximizing your tax deductions, you'll be able to keep more money in your pocket -- and that's cash that you can use to pay off debt, invest, or build your savings.