Best Results Organizing

Last week, we talked about the information return documents (W-2s, 1099s and 1098s) that delineate how much money you’ve received (from employers, financial institutions, etc.) and how much you’ve paid (either directly or indirectly) in various federal and regional taxes. But that’s just the beginning of your paperwork.

Then there are documents you received (and should have saved) as a result of some kind of transaction–receipts or records essential for completing personal or family taxes. Today’s post reviews which documents you should locate to complete your 2009 returns, and which you can begin collecting to make next year’s tax preparations even easier.

But first, do you have everyone’s Social Security cards? Sure, you’ve probably had your own number memorized since you took the SATs, but are you certain you know your spouse’s number? Your children’s? The elderly relative for whom you are the sole support? If you pay alimony, do you know your ex-spouse’s number?

A major cause of audits is a mismatch between information provided to the IRS by third parties (e.g., via W-2s and 1099s) and that provided by you. If a Social Security number is off by even one digit, it impacts not only your likelihood of being audited, but also your earnings history, and therefore, your eventual benefits.

So what documents do you need? There’s financial proof that is (or should be) delivered directly to you via some kind of correspondence and proof that you must retrieve at the time of a transaction, for various categories:

• Your Health

Medical insurance company summaries of out-of-pocket health expenditures for last year might be a goldmine if your family’s medical expenses were high. Unlike miscellaneous deductions, which need only combine to 2.5% of your adjusted gross income, medical expenses must exceed 7.5% of your AGI to be deductible–otherwise, you’d just take the Standard Deduction.

If your insurance company doesn’t automatically mail monthly or annual summaries, call to find out if there’s a way to log into your account to access and print a 2009 summary (and save you a lot of math). If not, you can usually use the “You Owe” column of the Explanation of Benefits your insurer sends after doctor’s visits, hospitalizations and procedures. This will give you a handle on which receipts or dated statements you’re seeking.

Be vigilant about saving medical expense receipts, as your EOB’s and insurance company summaries are not legal proof of what you spent on deductible medical expenses, only indications of what you owed to medical providers. Collect receipts for:

–Traditional medical expenses–Be sure you’re counting only medical expenses you paid and not portions paid by the insurance company or in the section on the Explanation of Benefits generally referred to as network savings. (That amount isn’t something you paid, or even something paid by the insurance company. It’s the amount knocked off the bill simply because you have insurance. If you were uninsured, you’d be charged more than the combined total normally paid by you and the insurance company. Oy!)

–Pharmaceutical expenses–Did you know you can call or go into your pharmacy and request a printout of all pharmacy purchases you made for yourself or your children? This is a major organizational advantage of using only one pharmacy–one printout. Because of privacy laws, your spouse may have to make a separate request.

–Health Savings Account documentation–For every qualified medical expense you pay through your health savings account (HSA) or medical savings account (MSA), it’s essential to keep a record of the name and address of each person or company you paid and the amount and date of the payment. Since HSAs can be used to cover everything from orthodontia and acupuncture to durable medical equipment and contact lens solution, be sure to save your receipts, and if a receipt doesn’t clearly describe what you actually purchased, make a note at the top to ease your labor at tax time.

–Medically-necessary travel expenses–Did you know that if you (or a family member) have conditions that require travel for treatment, you can deduct the travel costs? Either keep a log of the miles you drive your car for medical purposes and use the standard mileage rate, or, if you have a penchant for minutia, you can record gas and oil expenses directly related to any medically-necessary travel.

• Your Home

Home purchases–This year, with so many taxpayers taking advantage of the $8000 First-Time Homebuyer Credit, the issue of home purchase record-keeping is especially important. Be sure to maintain records regarding the purchase (or sales) documentation for a house, as well as records for closing costs, home inspections, fees paid to real estate agents and any records regarding private mortgage insurance.

Casualty and theft losses require documentation. For thefts, you’ll need to have proof of ownership (that’s why we recommend saving “big ticket” item receipts and videoing a household inventory), proof of theft (usually via a police report) and the date that the item is believed to have been stolen (to be sure it falls in the appropriate tax year).

For proof of loss due to casualty, you’ll want to maintain insurance company confirmation letters regarding the date and cause (ice storm, lightning, fire, auto accident, etc.) of loss, estimates of original costs and costs of repair/replacement vs. what your insurance company will or will not pay (or has paid), and proof of ownership.

Moving expenses relate to actual costs (movers, truck rental, storage, etc.) and mileage. Did you move more than 50 miles in order to work at a new job location? Check out IRS Publication 521 regarding what you’ll have to document.

Other home-related paperwork to save:

–Receipts and records regarding any home improvement efforts you’ve made which materially increase the value of your home (which will have a tax implication when you sell)

–Records of purchases for your primary residence that qualify you for the Energy Star tax credits this year–This gives you credit for 30% of costs up to $1500 worth of energy-efficient purchases, including biomass stoves, various heating/air conditioning devices, insulation, water heaters and windows and doors.

• Your Heart (Loved Ones and Philanthropy)

Childcare/Eldercare costs–To take advantage of the Child (or Dependent) Care Credit, you’ll need documentation of the name, address, and Taxpayer/Employer Identification number for any care provider you’ve used for your kids or other dependents. Whether you’re using a babysitter from down the street or employing the services of a daycare facility (for either children or adults), use federal form W-10, Dependent Care Provider’s Identification and Certification.

Plus, even if you’re not planning to run for elected office, be sure you’re not running afoul of Nanny Tax requirements regarding FICA (Social Security and Medicare) and FUTA (unemployment insurance). Keep records of what you paid (and when), what you withheld and what you submitted to the IRS.

Confirmation of donations from charitable agencies–You may get a nice form letter on the non-profit’s stationery, or they may bury your acknowledgment as tiny text in asterisked comments at the bottom of requests for further donations, so you really do need to be diligent about opening your mail. A confirmation should include the name of the qualifying charitable entity, a date of donation or at least the date of the acknowledgment (i.e., something to prove the tax year of the donation) and a dollar amount or a description of materials, if an “in-kind” (non-monetary) donation was made.

Not every charity confirms donations in writing. In past blogs, I’ve noted that for your protection, you should keep a “Tax Prep-Charity” folder into which you put documentation of any donations you make. If a charity sends you requests for money and you return a check or credit card authorization with the payment stub, use the rest of the page to mark the date, dollar amount and method by which you paid (check number or credit card name), and file it away.

• Your Head (Hobbies, Jobs, and Education)

Education expenses can be deducted in a variety of ways too numerous (and complex) for this arena–and then there are credits (the Hope Credit, the Lifetime Learning Credit, the American Opportunity Credit), Savings Bond programs and more. In addition to keeping your 1099-T (for tuition) and 1099-E (for educational interest), be sure to maintain transcripts that show your periods of academic enrollment, as well as canceled checks, credit card statements or other receipts that verify the dates of purchase and amounts you spent on tuition, books, lab materials, student fees, etc.

Notice of gambling or lottery winnings should come via W-2Gs, but even if a casino or lottery agency doesn’t send you a notice, you can be sure the government knows about your winnings. They certainly don’t know about your losses, however, which is why, if gambling is a big part of your lifestyle, you’ll want to keep a diary of your gambling losses to offset your winnings.

To deduct your losses, the IRS requires that you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses. They’d like your diary to include the date and type of gambling activity, the name and address where you gambled (apparently “Joe the Bookie” isn’t going to suffice), names of persons present and amount you won or lost. Paper Doll doesn’t imagine that the personality attributes for gambling aficionados and those for detailed diary-keepers would dovetail, but hey, I’m just here for the organizing.

Un-reimbursed employee expenses may include expenses for your vehicle or for travel, meals, entertainment or even client gifts. Unfortunately, you have to itemize (i.e., not take the Standard Deduction) and your combined itemized expenses must equal 2.5% or more of your adjusted gross income. Since you have no way of knowing in January what kinds of expenses your employer might force you to rack up in July, start maintaining a folder for these records right away.

Tips–Do you work in the food industry or a personal service profession where you receive tips? The IRS expects you to keep track of and report what you’ve made. They’ve even created form 4070A with lines for each day of the month–print 12 of them–to help you maintain your record of the tips you took in and what you were required to “tip out” to other support staff members (like bus boys, shampooers, etc.).

Proof of payment for jury duty–Most people get less than $9/day (though some municipalities are now paying up to $40/day), but since it’s reported to the government, you need to keep your records, too, so you can report it as miscellaneous income. If your employers required you to turn your jury duty payments over them, you’ll want records so you can request an adjustment to reduce your AGI.

Self-employed/small business expenses–If you own your own business, Paper Doll hopes you have a carefully-created filing system for all your business-related expenses. But just in case, next week’s post will be all for you, reviewing the kinds of records you need to maintain to ease the small business tax-time burden.

Remember, Paper Doll is a professional organizer. In the parlance of the web, IANAA (I am not an accountant) and IANYA (I am not your accountant). For tax-related questions, please contact an authorized tax preparation specialist or financial planner.