Tax season has a habit of sneaking up on people and causing a scramble before the deadline. While you can't avoid paying taxes, you can take some of the anxiety out of the process by being prepared. Our planning checklist will help you have everything you need on hand.
To file your taxes, you'll need to provide various details that you already know, like your full name, address, date of birth and Social Security Number or Tax Identification Number. You'll also need this information for your spouse and any dependents, if you're filing jointly.
Last year's taxes
Whether you're filing your taxes yourself or working with a professional, last year's return can serve as a guide. You can see what deductions you've used in the past and determine what you need to add in for this year.
Whether you're filing your taxes yourself or working with a professional, last year's return can serve as a guide.
Routing and account numbers
Have your bank account information handy. Opting to receive your return by direct deposit or pay your taxes via your bank account by submitting your routing and account number can speed up a deposit or payment.
You will need specific details about all income you received during the prior year.
If you and/or your spouse worked as an employee, you should receive a W2 from your employer, which shows the amount of taxes withheld from your paycheck and benefits provided.
If you worked as an independent contractor or freelancer, you will receive a 1099 detailing that income. 1099 forms are also used for payments like gambling winnings, rents or royalties, gains and losses in brokerage accounts and dividendand interest payments.
Types of deductions
Deductions are expenses you accrued that can reduce your overall tax bill. To claim them on your taxes, you'll need to keep your receipts as proof.
Depending on the amount of taxes you've paid throughout the year, and how many deductions or credits you may qualify for, you could receive a tax refund. If you do, consider stashing it in the Ally Bank Savings Account so your money can work smarter.
Retirement account contributions
If you contributed to a 401(k) or other retirement account, those amounts are tax deductible.
Donations to nonprofits, churches and other charitable gifts are also tax deductible. You must itemize them on your tax return.
Within certain limits, you can deduct the cost of hospital visits, prescriptions and other medical expenses.
If you pay for health insurance on your own, you can deduct the cost of your monthly premiums.
Work-related schooling costs including tuition, books, supplies and lab fees may be tax deductible if it maintains or improves skills in your current occupation. You can also write off the costs if the education is required by your employer or the law to keep your present salary, status or job.
State and local taxes
Depending on where you live and whether you itemize when filing your federal taxes, you may be able to deduct certain taxes paid to state and local governments up to $10,000.
Don't forget to take advantage of credits, which can reduce the amount you owe or increase your refund.
American Opportunity and Lifetime Learning Credits
If you're a student, you may qualify for the American Opportunity Tax Credit (AOTC), which provides a maximum credit of $2,500 for the first four years of higher education. And the Lifetime Learning Credit (LLC) is worth up to $2,000 per year for qualified tuition and related expenses.
Child Tax Credit
If you have dependents, the Child Tax Credit allows you to qualify for a credit for each qualifying child under the age of 17.
Retirement Savings Contribution Credit
Also known as the Saver's Credit, this credit allows you to take a tax credit for making eligible contributions to your IRA, or Individual Retirement Account, or employer-sponsored retirement plan, like a 401(k).
Plan ahead for easy filing
Don't let tax time take you by surprise and cause unneeded stress this year. With a little planning, you'll have the paperwork you need at your fingertips to make the filing process as smooth as possible.