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Now is the time when we start thinking about filing our income taxes from the previous year. Even though it’s an annual event, it can cause anxiety for many. By preparing now, you can ease the process for yourself and your tax preparer.
The Internal Revenue Service tracks everyone by their Social Security number. Make sure you have your number and that of your spouse if filing jointly, plus the numbers of your dependents. In addition to your W-2 or like form, you want to include information about any interest you earned from savings accounts, stocks or mutual funds as these are also taxable.
One of the largest deductions many people can claim is mortgage interest. If you have a mortgage, you should get a 1098 form from your lender specifying how much interest you paid in the last year. You will also want to remember any documentation for any additional deductions you may have, such as property taxes paid and charitable donations made within the past year. Common forms of documentation for charitable donations include a canceled check if you gave a monetary donation or an itemized receipt if you donated clothes or other goods.
Your goal should be to break even at tax time, which means you don’t receive a big refund from the state or federal government or you don’t have to write a big check to either or both.
Every year, thousands of taxpayers will get refunds. While some consider overpaying in taxes on their paycheck a form of forced savings, you may want to consider how you could use this money throughout the year. The extra money could help you with such things as building your personal savings or emergency fund, making an extra house payment or paying off debt. To change your tax withholding, you will need to file a new W-4 form with your employer.