Tax Documents You Need to Know

coffee mug near open folder with tax withholding paper
by Advice Chaser
by Advice Chaser
coffee mug near open folder with tax withholding paper

The 2020 tax year is over, and you may already have received tax documents from your employer, freelance clients, mortgage lender, or more. Soon it will be time to complete your own documents when you file your taxes.

To help you prepare your taxes, or prepare the necessary paperwork for your tax preparer, it helps to know about the different tax forms you will receive and fill out.

Tax Documents You Will Receive

Long before April, you will start to receive documentation from your employer, your mortgage lender, freelance clients, and more. These will be vital when you fill out your taxes, because they document what you’ve paid or received during the previous year. As soon as you receive them, put them in a safe place together.

If you know you should receive one of these and haven’t yet, contact the person or company to remind them. Everyone who sends one out sends two copies: one to the IRS and one to you. So if you haven’t received yours, it’s possible the IRS still might have one. You can’t fill out your own tax forms correctly without all of these documents that apply.

Form W-2

Your employer records wages paid to you on this form. It should document what you were paid, what was withheld for taxes, and what you contributed to your employer’s retirement plan, if anything.

When you were hired, you filled out a W-4 that told your employer all your tax information and what they should withhold for your taxes. If you owe taxes this year, or if you receive a very large refund, you may want to fill out a new W-4 for your employer to adjust the withholding amount.

Form 1098

If you have a mortgage, your lender will send you one of these documenting the interest you’ve paid. If you pay tuition or have a student loan, you may receive 1098-T for tuition payments or 1098-E for student loan interest. These expenses may be deductible, so file these forms in a safe place till you’re ready to do your taxes.

Form 1099

This form records sources of income from someone other than your employer. There are many types, such as 1099-DIV for dividends, 1099-INT for interest, 1099-OID for bonds purchased below face value, and 1099-MISC for freelance income. There are many more types, but it always records non-wage income. Like 1098, this will come in the mail, and you need to save it till tax time.

Tax Documents You Need to Complete

Once you’ve collected all the forms you’ve received—W-4, 1098,1099—you should also gather any additional documentation you need. For instance, if you donated to charity and want to itemize your donations, you’ll need a letter from each charity saying how much you donated and when.

Then it’s time to fill out your own tax forms. You may be doing this with an accountant, a financial advisor, or a computer program, but it’s still handy to know which documents you will need to complete and what each one means. 

Form 1040 and 1040-SR

This is the standard form for an individual to report their income and deduct expenses. Most people use 1040, while seniors over 65 may fill out 1040-SR. The 1040EZ and 1040A are no longer used.

Lest that sound too simple, there are various “schedules” you must complete in order to enter the totals on your 1040. These calculate your income and deductions from various sources.

Schedule A

This document allows you to itemize your deductions, if you have charitable donations or other deductions to write off. You don’t have to use it, since you can take the standard deduction instead, but if your itemized deductions will add up to more than the standard deduction, it’s definitely worth the trouble.

Schedule B

This tallies up your taxable interest and investment income. If you have investments earning interest and dividends, you’ll need to fill this out. But remember, traditional IRAs and 401(k)s are untaxed until you withdraw the money, so you’ll save money on this form if your investments are in one of these.

Schedule C

This document is for recording income or losses from freelancing, contracted work, or side gigs. If you own your own business as a sole proprietor or single-member LLC, your profits and losses will go here, as well as any business expenses you want to write off. You will use one or more 1099s to fill this out.

Schedule D

Here you will record profits and losses from trading stocks. Capital gains are taxed at a different rate from your regular income, so it needs to be recorded separately. You can reduce your taxes here by reporting your losses. Tax loss harvesting can save you money on schedule D.

Schedule E and F

Schedule E is for recording rental income and royalties, and schedule F for farming income.

Two Special Documents

Form 1040X

This is the document you use to correct your taxes if you’ve made an error. You may need to include other documents as well.

Form 4868

This form lets you request an extension on your taxes, so long as you file it by the usual April deadline. You must include your best guess of what you will owe in taxes, or you will be charged interest on the amount you didn’t pay. And if you miss the extended filing deadline, you’ll owe as much as 5% of your total tax bill for each month your taxes are late.

Whatever You Do, Don’t Panic

Tax time is coming, but you don’t have to face it alone. Did you know a financial advisor can do more for your taxes than an accountant can? Now would be a great time to call your financial advisor to discuss how to get those tax forms done on time.

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