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Your Income Tax Return Checklist for 2021

Everything You Need to Prepare for Taxes

Did you know that approximately one third of Americans delay tax preparation each year? Many say that the task is too time-consuming and can be stressful.

You can speed up the process and decrease stress by getting a jump-start on gathering the information and documentation you need to file your tax return ahead of time.  Here are some things to think about to help you prepare to file your 2021 taxes along with a handy income tax return checklist.

Understand Your Filing Status

There are several types of taxes we pay every year. These include sales taxes, property, and real estate taxes, inheritance taxes, capital gains tax, and income tax. Your income tax liability can be affected by your living arrangements which determine filing status.

Your filing status determines your individual tax rate. Some filing statuses come with bigger deductions. There are five filing statuses for individual taxpayers, and you may qualify for more than one. The choices are:

  • Single: unmarried people (including some divorced and widowed people) 
  • Married filing jointly: most married couples use this status
  • Married filing separately: married people who want to keep their finances separate from their spouses because of high earnings, prior tax liabilities, or trust issues
  • Head of household: unmarried filers providing at least half the housing and support costs for their dependents
  • Qualifying widow(er) with dependent child: tax filers who lost a spouse recently and are still supporting at least one child

It’s generally advised to use the filing status with the lowest tax liability. If you are unsure which filing status is most beneficial for you, we can connect you with one of our accountants.  

Taxable Income vs. Non-taxable Income

Filing your 2021 taxes may be more complicated than in years past. The pandemic and subsequent local and federal relief measures have raised a lot of questions about taxable and non-taxable income. When it comes to your filing, remember, the basics haven’t changed.

Any income you earn from an employer is considered taxable income. However, you sometimes have income that doesn’t come from wages. That might include inheritances, profits from the sale of a home, Social Security retirement income, stock dividends, and other sources. Some of these other income types are taxable, while others, like inheritances, child support payments, and cash rebates are not. However, the non-taxable income must still be reported on your tax forms each year.

As a reminder in 2021, taxable income does not include the stimulus checks you received as these payments are considered non-taxable.

The rules for what are and are not taxable change often. So, your income tax return checklist should include documentation of all your income, both taxable and non-taxable, whether you file your taxes yourself or hire a professional.

Your Income Tax Return Checklist

Your income tax return checklist includes documents verifying your personal information, income, deductions, and other helpful information.

Personal Information

The specific forms you must file at tax time will depend on your filing status, the sources of your income, and other factors. However, there are some pieces of information everyone will need for tax preparation.

  • Proof of identification (photo ID like a driver’s license or passport)
  • Social Security numbers for you, your spouse, and dependents
  • Individual Taxpayer Identification Number (ITIN) assignment letter for you, your spouse, and your dependents if you don’t have a Social Security number
  • Proof of foreign status, if applying for an ITIN
  • Birth dates for you, your spouse, and all dependents

Documenting Your Income

You must report everything you earn to the IRS and, depending on the income source, different forms may be required.

  • Wages and earnings from employment (Form W-2, W-2G)
  • Social Security benefits received (SSA-1099)
  • Income from pensions, retirement plans, profit-sharing, and annuities (1099-R)
  • Independent contractor income (1099-MISC)
  • Unemployment income (1099-G)
  • Interest and dividend statements from banks (Forms 1099-INT, 1099-DIV)
  • Income from the sale of a property (1099-S)
  • Cancellation of debt (1099-C)
  • Cost basis of securities sold (1099-B and Supplemental Information Form)

You’ll also need to account for other types of income, including:

  • Alimony received
  • Business or farm income (including a profit/loss statement and capital equipment information)
  • Other income like jury duty, gambling winnings, and scholarships
  • Rental property income (profit/loss statement, suspended loss information)

Proof of Eligible Deductions

Although you generally don’t need to send copies of your expense receipts to the IRS when you file your income taxes, you will need them to calculate your tax liability. You should also hold onto them after you file. They are your proof that a deduction was legitimate should you be audited.

Before tax time, gather all documentation you have for the following:

  • Alimony paid
  • Contributions to self-employed pension plans (Keogh, SEP, SIMPLE, etc.) 
  • Self-employed health insurance payments
  • IRA contributions 
  • Contributions to a Medical Savings Account (MSA)
  • Moving expense records
  • Receipts for qualified energy-efficient home improvements (solar, windows, etc.)
  • Daycare expenses (Provider’s name, address, and Social Security number or EID number)
  • Receipts for expenses paid for classroom supplies, etc. (Teachers only)
  • Student loan interest paid (1098-E or loan statements)
  • College or Trade school tuition paid (1098-T for receipts/canceled checks)

If you plan to itemize deductions or think you might, you’ll need to gather documents that substantiate the expenses you’ll list on Schedule A. That includes:

  • Mortgage interest (1098)
  • Charitable contributions (Name, address, and how much paid to each)
  • Medical expenses (health insurance premiums, prescriptions, doctors’ fees, dental fees, eyeglasses, long term care insurance premiums)
  • Real estate taxes 
  • PMI insurance and points
  • Union/professional dues
  • Unreimbursed job expenses
  • Other job-related costs (uniforms, supplies, seminars, continuing education, publications, travel, etc.)

Other Documents Needed

There are a few other documents you will need to gather to make tax preparation easier.

  • A copy of last year’s federal and state returns, if available
  • Health insurance coverage forms (1095-A, B, and C) 
  • Health insurance exemption certificate (if applicable)
  • Bank account routing number and account number (for direct deposit of your refund)

Additionally, if you and your spouse file a joint return (married filing jointly), you both will need to be present to sign your completed forms. This is true for both paper and electronic filing. Even if only one of you had income, you must both sign for yourselves. 

What are the Filing Deadlines?

April 18, 2022 is the filing deadline for 2021 Income Tax Return filings. If you plan to file for an extension, you need to complete it and e-file, or have it postmarked by October 15, 2022.

Wondering when you should get started? Now is a great time to look at all your income and deductions and make sure you’re on pace so you can adjust your affairs in November and December to minimize your tax liability, if necessary.

Ensuring You Get It Right

This income tax return checklist should help you be more prepared to file your 2021 taxes, but it isn’t all you need. 

Tax policy changes with the political climate in the capital. The past couple of years have brought changes to tax brackets, childcare and education deductions, and more. Brushing up on the latest changes is a full-time job—our job.

For more than 70 years, the tax professionals at SME CPAs have stayed ahead of the changing tax laws, so you don’t have to. Contact us to learn how we can help you with your tax planning and filing.

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