It’s the end of the year, and that means tax time is approaching. For young adults who may be filing income taxes this year for the first time, a little organization can reduce your stress and ensure a smooth experience and the best possible outcome. Here’s what you need to know.
1. Organize records
It’s important to gather all of your relevant documents, so you’ll have everything you need to fill out your income tax forms. The most common ones are:
- Income statements, including W-2 and 1099 forms
- Records of alimony paid or received
- Social Security numbers and birthdates for you, your spouse and any dependents
- State and local income and property tax records
- Statements of interest paid on student loans and mortgages
- Records from the sale of a home, as well as receipts from moving, education and health expenses
- Unemployment benefit statements
- Self-employment income and expense records
- Documentation of retirement-fund contributions
- Charitable donation receipts
- Child care and adoption expense documentation
- Receipts and other documents for energy credits
- Interest and earnings statements from savings, checking and investment accounts
- Pension, retirement fund and Social Security income records, including 1099-R and SSA-1099 forms
It’s also helpful to collect your year-end credit card statements so you can see if you have any tax-deductible expenditures.
2. Use free tax-prep services
The IRS partners with a number of leading tax software companies to offer online tax filing services to some consumers. If you earned $60,000 or less you may qualify for free tax-prep software. To access it, you must go through the IRS Free File website to choose a service provider.
If your income is too high to get the free tax-prep services, you can still find fillable electronic versions of IRS tax forms at the site.
3. Last-minute retirement contributions
To get the best tax outcome, consider whether you want to make any contributions to a traditional Individual Retirement Arrangement, or IRA. Financial institutions such as United Teletech Financial Federal Credit Union offer both traditional and Roth IRAs, though only contributions you make to traditional IRAs are tax-deductible at the time of the contribution.
If you haven’t put your money in by the end of the year, you haven’t missed your opportunity. You have until April 15 of the following year to make IRA contributions and still have them count for 2015. Taxpayers who aren’t contributing to other tax-advantaged retirement plans can put up to $5,500 in an IRA each year ($6,500 if you’re over age 50), reducing taxable income by the same amount.
The bottom line
With a little organization, tax time doesn’t have to be a stressful experience. Gather your documents and get the process started early to avoid a scramble when mid-April rolls around.
Roberta Pescow and Jeanne Lee, NerdWallet
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