Preparing your taxes requires gathering various documents to ensure accurate reporting and to maximize any deductions or credits you're eligible for. Current clients receive an organizer from us the first week of the year to help compile the necessary information. Here's a comprehensive list to assist you:

Personal Information:

• Social Security Numbers (SSNs): For yourself, your spouse, and any dependents.
• Individual Taxpayer Identification Numbers (ITINs): If applicable.
• Bank Account Details: Routing and account numbers for direct deposit or withdrawal.
• Prior Tax Return Details: Your adjusted gross income (AGI) and exact refund amount from your last tax return.

Income Documents:

• W-2 Forms: Reports of wages from employers.
• 1099 Forms: For various income types such as:
  • 1099-INT: Interest income.
  • 1099-DIV: Dividends and distributions.
  • 1099-MISC: Miscellaneous income.
  • 1099-NEC: Nonemployee compensation.
  • 1099-G: Government payments, including unemployment benefits.
  • 1099-R: Distributions from pensions, annuities, or retirement plans.
  • 1099-B: Proceeds from broker transactions.
  • 1099-K: Payment transactions from third-party networks.
• Other Income Records: Documentation of alimony received, rental income, royalties, or other earnings.

Deduction and Credit Documents:

• Educational Expenses: Forms 1098-T (tuition) and 1098-E (student loan interest).
• Mortgage Interest: Form 1098 from your lender.
• Property Taxes: Records of real estate and personal property tax payments.
• Charitable Contributions: Receipts or acknowledgment letters from charitable organizations.
• Medical Expenses: Invoices and receipts for medical and dental expenses.
• Childcare Costs: Statements detailing amounts paid and the provider's tax identification number.
• Retirement Contributions: Records of contributions to IRAs or other retirement accounts.
• Energy-Efficient Home Improvements: Receipts and manufacturer certifications for qualifying improvements.

Health Insurance Information:

• Forms 1095-A, B, or C: Documents detailing health coverage, especially if you received coverage through the Health Insurance Marketplace.

Miscellaneous Documents:

• Estimated Tax Payments: Records of any quarterly tax payments made during the year.
• Foreign Accounts: Information on foreign bank accounts, assets, or income.
• Identity Protection PIN: If the IRS issued you one due to identity theft concerns.

Organizing these documents ahead of time can streamline the tax preparation process and help ensure that your return is accurate and complete.

The difference between a tax credit and a tax deduction lies in how they reduce your tax liability:

Tax Deduction

• Definition: A tax deduction reduces the amount of your income that is subject to tax. It lowers your taxable income.
• Effect: Reduces your taxes indirectly by decreasing your taxable income, which is then multiplied by your tax rate.
• Example: If you’re in the 22% tax bracket and have a $1,000 deduction, you save $220 in taxes ($1,000 × 22%).

Tax Credit

• Definition: A tax credit is a direct reduction of the amount of tax you owe. It applies directly to your tax bill.
• Effect: Reduces your taxes dollar-for-dollar, which can make it more valuable than a deduction of the same amount.
• Example: If you owe $1,000 in taxes and have a $1,000 tax credit, your tax bill is reduced to $0.

Practical Insight

• Credits are more valuable: Since credits reduce taxes directly, they generally offer greater savings compared to deductions of the same amount.
• Refundable vs. Nonrefundable Credits:
  • Refundable credits can result in a refund if they reduce your tax liability below $0.
  • Nonrefundable credits can only reduce your tax liability to $0 but don’t generate a refund.

If you’re balancing between the two, always prioritize understanding and applying tax credits first before maximizing deductions.

It's essential to retain tax records for specific periods to substantiate income, deductions, and credits claimed on your returns. Here's a breakdown of the recommended retention periods:

Federal Guidelines:

• General Rule: Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
• Unreported Income: If you omitted income exceeding 25% of the gross income shown on your return, retain records for 6 years.
• Worthless Securities or Bad Debt Deduction: For claims involving worthless securities or bad debt deductions, maintain records for 7 years.
• Employment Taxes: Keep employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.
• Non-filers or Fraudulent Returns: If you didn't file a return or filed a fraudulent one, retain records indefinitely.

California State Guidelines:

The California Franchise Tax Board generally advises keeping tax records for 4 years from the due date of the return or the date filed, whichever is later.

Property Records:

For property-related documents, such as records of home purchases, improvements, and sales, retain them for as long as you own the property plus an additional 3 years after the property is sold.

Best Practices:

• Digital Copies: Storing digital copies of your tax records can save space and ensure longevity. Ensure these digital records are clear, legible, and securely stored.
• Consultation: Given the nuances in tax laws and potential changes, it's wise to consult with a tax professional regarding your specific situation.

By adhering to these guidelines, you can ensure compliance and be prepared in the event of an audit or other tax-related inquiries.

Helpful links https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records?utm_source

https://www.ftb.ca.gov/file/after-you-file/keeping-your-tax-records.html?utm_source

https://www.businessinsider.com/personal-finance/taxes/how-long-to-keep-tax-returns

Missing the tax filing deadline can lead to consequences, but the severity depends on whether you owe taxes or are expecting a refund. Here's what you need to know:

If You Owe Taxes

1. Failure-to-File Penalty:
   • If you miss the deadline and owe taxes, the IRS imposes a Failure-to-File Penalty, which is 5% of the unpaid taxes for each month (or part of a month) that your return is late, up to a maximum of 25%.
   • Filing more than 60 days late results in a minimum penalty of either $435 or 100% of the unpaid tax, whichever is less.
2. Failure-to-Pay Penalty:
   • If you file but don’t pay the full amount owed, the IRS charges a Failure-to-Pay Penalty, which is 0.5% of the unpaid taxes per month, up to 25%.
   • Interest also accrues on the unpaid balance, compounded daily.
3. Combined Penalties:
   • If both penalties apply, the monthly penalty is reduced to 5%.

If You Expect a Refund

• No Late Filing Penalty:
  • There’s no penalty for filing late if you are owed a refund. However, you must file within 3 years of the original due date to claim it. After that, the refund is forfeited.

Steps to Take If You Miss the Deadline

1. File as Soon as Possible:
   • Even if you can't pay immediately, file to minimize the Failure-to-File Penalty.
2. Pay What You Can:
   • Partial payments reduce penalties and interest. The IRS offers payment plans if you can’t pay the full amount.
3. Request an Extension:
   • If the deadline hasn’t passed yet, you can request an extension, giving you until October 15 to file. However, extensions don’t delay the deadline for payment.
4. Contact the IRS:
   • If you face extenuating circumstances, the IRS may waive penalties. Contact them to explain your situation and request relief.

Long-Term Consequences

• Tax Liens or Levies:
  • Unpaid taxes may result in the IRS filing a lien against your property or levying wages or bank accounts.
• Credit Impact:
  • While tax debts aren’t directly reported to credit bureaus, liens can affect your credit score.

Pro Tip: If you miss the deadline, take immediate steps to file and pay what you can. The sooner you act, the lower the penalties and interest will be.

It is prudent to explore available tax credits and deductions to reduce your tax liability potentially. Tax laws can change; consult with a tax professional to ensure eligibility and maximize benefits. Maintain thorough records to substantiate claims for credits and deductions. By staying informed and proactive, you can effectively manage your tax obligations and take advantage of available benefits.