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Day 1: Gather data
We're talking about the income tax, so that means you need to gather all your earnings information.
Start with your W-2 wage statements. You should have one for each salaried job you had last year.
Don't forget any 1099 forms. These statements, each with a different suffix or prefix, will come from various sources:
- You'll have received some from employers if you did independent contract work.
- You'll have Form 1099-INT and 1099-DIV from banks and investment companies if you owned financial instruments that paid interest or dividends.
- You'll need Form 1099-B if you sold a stock, Form 1099-S if you sold real estate.
- Form SSA-1099 will document any Social Security income you received.
- Form 1099-G goes to those who collected unemployment, which, unfortunately, is taxable.
- If you had some luck and received Form W-2G from a gambling establishment, you'll have to report any winnings.
Remember, the IRS also received copies of these income statements. Put them together with other tax-related documents you received earlier.
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Day 2: Examine exemptions
Today we focus on claiming exemptions, dependents and a wide variety of adjustments to income.
First, your exemptions: On your 2016 return, you can take $4,050 off the top for each person you claim as an exemption. That's generally you, your spouse and any dependents, which usually means your kids. But if you cared for a parent, even one who didn't live in your home, you may be able to claim an exemption for that person, too.
You'll need the Social Security numbers of all your dependents. Without those nine digits, the IRS will disallow the claim.
Next, there are some expenses eligible taxpayers can claim directly on the Form 1040 tax return or, to a lesser degree, the 1040A. These are known as adjustments to income or above-the-line deductions and include -- to name just a few -- certain IRA contributions, student loan interest, alimony payments and moving costs.
Take a few minutes to check out the complete income adjustments list, and note which ones apply to you. That's it. You're done for today.
Day 3: Decide on deductions
Today you choose between the standard or itemized deduction amount.
Most taxpayers use the standard deduction rather than bothering with tracking every expense to itemize. If the standard amount works for you, great!
If, however, your tax-deductible costs add up to more than the standard deduction amount, you'll want to maximize those expenses by itemizing.
These itemized deductions include:
- Home-related write-offs, such as mortgage interest and property taxes.
- Medical expenses.
- Charitable donations.
- State income taxes.
Go back to the material you collected on day one. Your W-2s will show how much state and local income taxes you paid. Dig out the receipts you got for all your deductible donations. And find that statement from the mortgage company showing your loan interest and property tax payments.
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Make sure you don't miss any, because all these amounts will help whittle your income to the lowest possible taxable amount.
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Day 4: Find your form
Today we find the tax form that's right for you.
Even if you use tax software to fill out your return, it's a good idea to know where your information will end up.
The IRS offers three main tax forms: 1040EZ, 1040A and 1040. It may be tempting to use the simplest one, the 1040EZ, but other two offer many more tax break opportunities.
Once you've made your choice, check it out to see exactly where the information you've gathered will go. If an attachment is required, it will be noted on the tax return.
For example, if you opted for the long 1040 return, you'll likely need:
Check out Bankrate's 1040EZ tax form calculator to see what you can expect if you use this form.
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Day 5: Count your credits
Credits are better than deductions because they cut your tax bill dollar for dollar. A few even can get you a refund.
If you didn't make much money, you may be eligible for the earned income tax credit, or EITC. This is the one credit that's available if your taxes will be filed using the 1040EZ.
Many more credits show up on the Form 1040 and Form 1040A. Among the most popular are:
So check out the credit possibilities, and get ready to claim them. You'll get your chance tomorrow.
Use Bankrate's 1040 tax estimator calculator to see if you'll get a refund or if you'll owe money to the U.S. Treasury.
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Day 6: Fill out your forms
Are you ready to have some tax fun? Today we get to work on your actual return.
If you use tax software, it will take you through the process, asking you for the information you've collected over the last few days.
Many taxpayers, however, still fill out paper returns. If you're in that camp, be sure to have the instruction book handy so that you don't miss any credits or deductions.
Today's task will probably require more than an hour, but don't be in too big of a hurry. Enter your information carefully to ensure you don't make any common tax-filing mistakes.
When you finish, set it aside. We have one more day to wrap things up.
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Day 7: Sign, seal and deliver
We're almost done! Today, with fresh eyes, double-check your tax form entries.
Once you're sure you've correctly accounted for all your income, claimed every possible deduction and credit, and entered all that information properly on your return, it's time to put the finishing touches on your annual tax duties.
Sign it, electronically or by hand, depending on your delivery method. Either way, a John Hancock is a requirement.
If you did your taxes via computer, be sure to save a copy to your hard drive. A printed copy isn't a bad idea, either. If you filled out your Form 1040 by hand, make yourself a copy of that final form and all attachments.
Then send it on its way, either via the post office or by hitting the "enter" button on your computer keyboard.
That's it -- you're done! Now, take a well-deserved break. And this time next year, you can again complete your annual tax chores in just seven relatively stress-free days.