Tax Information Checklist: Get Ready to File Before The Deadline

Before you know it, the 2009 tax-filing deadline will be here again. Wouldn’t you rather be watching your favorite television show—or doing something else that you enjoy—on the evening of April 15, 2010, instead of rushing through your tax forms to make a midnight postmark? By organizing your tax information now and getting checklist together, you may be able to relax a bit in April.

Organize Your Documents

Start by organizing all the documents that pertain to your 2009 taxes. You’ll typically receive these types of documents by year-end or no later than January 31 of the New Year. This list includes much of the information the average taxpayer will need, although certain items may not apply to you.

Sources of Income

  • Form W-2 from employers
  • Receipts from odd jobs, rental property or other income
  • Evidence of pension or disability payments
  • Proof of unemployment compensation if you collected it

Investment Income

  • Documentation of your contribution to an Individual Retirement Account (IRA)—you may be able to deduct your contribution to a Traditional IRA if you meet income thresholds
  • Form 1099—which details yearly investment gains or losses—if you own mutual funds in taxable accounts
  • Year-end statements from brokerage accounts in which you hold stocks or bonds
  • Year-end statements from companies in which you own stock and receive dividends
  • Year-end bank statements that detail interest income

Potential Deductions

  • Documentation of mortgage interest
  • Evidence of charitable contributions
  • Receipts for payments of college tuition and student loans (if you meet income thresholds)
  • Paperwork detailing educational expenses for yourself or a family member (if you meet income thresholds)
  • Documentation of job-hunting expenses
  • Evidence of unreimbursed business expenses, such as subscriptions to trade publications or membership in professional associations

Strategize to Minimize Your Tax Bite

Once you have gathered the necessary paperwork, start thinking about ways to reduce your 2010 tax bill. The tips below may help:

Make the Most of Tax-Advantaged Accounts

If you contribute to an employer-sponsored retirement plan, a traditional IRA or an annuity, remember that earnings on your contributions are allowed to grow tax-deferred until withdrawal. At that point, distributions will be taxable as income at then-current rates. With a Roth IRA, withdrawals are tax-free if you meet the requirements for a qualified distribution.* Keep in mind, however, that early withdrawals from a qualified retirement plan or annuity may be subject to a 10% penalty tax.

Offset Investment Gains With Losses

At times you may be able to use losses in a taxable investment portfolio to help offset capital gains you realized by selling assets at a profit. For example, if you sell investments that have lost money, you may opt to deduct up to $3,000 in investment losses from that year’s tax return. Additional losses can be carried forward and used to offset future capital gains.

Understand Short- and Long-Term Capital Gains

If you have an investment and hold it for at least one year before selling, you’ll pay a maximum federal tax of 15% on capital gains. Keep it for less than one year, and you’ll pay regular income taxes—up to 35%.

Finally, keep in mind that tax rules are changing constantly and that investments are not the only aspect of your life that deserves special attention come tax time. For more ideas on how to reduce taxes in 2009 and 2010, consider speaking with a tax professional.

*Restrictions, penalties and taxes may apply. Unless certain criteria are met, Roth IRA owners must be 59 ½ or older and have held the IRAs for 5 years before tax-free withdrawals are permitted.

This article was prepared by Standard & Poor’s Financial Communications and is not intended to provide specific investment advice or recommendations for any individual. Consult your financial advisor or me if you have any questions.

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