Tax Season 101

Tax Season is upon us, and we want to help you with a few filing tips. April 18 is the last day to file your taxes--we want to ensure you are prepared if you have not done so already. We have created a list of what documentation you will need for filing! 

Tax Documentation Checklist

Personal Information and Documents

• Your social security number or tax ID number
• To get your refund by direct deposit or pay your balance owing, you'll need your routing and account numbers.
• If applicable, your spouse’s full name, social security number or tax ID number, and date of birth.
• If you have IRS Notice 1444 or other records reflecting your EIP amount, you may have information regarding your stimulus payment, also known as an economic impact payment (EIP).
• To determine the Recovery Rebate Credit eligibility, use IRS Letter 6475 — your 2021 Economic Impact Payment.
• If the IRS has provided you, your spouse, or a dependent an Identity Protection PIN, make sure to have it on hand for filing.

Dependent Information and Documents

• Dates of birth and social security numbers or tax ID numbers
• Income of dependents and others in your home
• If appropriate, childcare records (including the provider's tax ID number)
• IRS Letter 6419 - documentation that contains all of the information you'll need to report your child tax credit (CTC) 

Sources of Income 

• W-2 Forms 
• If you are Unemployed, you will need to provide a 1099-G
• If you are Self Employed, you will need the following:
• Forms 1099, Schedules K-1, income records to verify amounts not reported on 1099-MISC or new 1099-NEC
• Form 1040–ES
• A Record of all expenses (i.e., check registers or credit card statements, and receipts)
• Depreciation information for business-use assets (cost, date placed in operation)
• In-Home office records

Deductions

Before claiming a new deduction, always check with your tax preparer to get their opinion. Many aspects of your business can be deducted from your taxes; you'll be surprised at how many there are. 

In House Operations

Day-to-day operations can undoubtedly be deducted from your tax filings. It is always good practice to save receipts and bank statements by identifying the exact amount that has been spent for your business. A few items that can be deducted are: 

• Marketing, Website
• Business License 
• Cost Of Goods Sold
• Equipment, Software (that means Details!)
• Events (opening ceremony, monthly open house events, workshops)
• Decor for your Office and Shop
• Business Insurance
• Renovations, Repairs
• Business Loans/ Interest Payments
• Merchant Processing Fees 
• Payroll, Salaries, and Benefit Expenses
• Attorney and Bookkeeping fees 
• Office Supplies
• Rent and Utilities
• Subcontractors 

Other Operations

In 2021, did you work from home? Your home utilities, mileage or transportation expenses, and home office supplies can all be deducted! The IRS has two requirements to meet to qualify for this exception. First, the space in your home must be regularly used as a home office. Secondly, it must act as an exclusive place for your business. Once these have been met, you will calculate the actual expense. You'll need to calculate the total square footage of your home as well as the square footage of your dedicated home office. Then divide the square footage of your home office by the actual square footage of your home. Then, you have your percentage for your deduction!

The IRS does not consider the money part of your gross income if your business obtained a loan via the Paycheck Protection Program. Furthermore, you can generally deduct the business expenditures you paid on your federal tax return with the loan money.

You could deduct educational expenses from your taxes if you spent time attending classes or earning a certification last year. You will also be eligible to deduct any travel expenses, such as attending an out-of-state convention or workshop or meeting with potential clients or partners out of town. Airfare, ground transportation, lodging, and public transportation are all valid. If you use any methods within your city limits, they are also eligible for a deduction. 

Meals can be filed with up to a 50% deduction. Meals while on the road (as a business owner or as an employee), Employee meals throughout work shifts for the employer's pleasure, and meals with clients/ business associates are all acceptable options.

If you work for yourself, you can take advantage of specific tax incentives for retirement savings. Solo 401(k)s, also known as one-participant 401(k)s, are IRS-approved retirement plans for self-employed individuals. They provide many of the same benefits as an employer-sponsored 401(k), such as the ability to save money before taxes.

Even if you don't have a workplace 401(k) or don't want to use your employer-sponsored retirement account, an IRA allows you to claim tax benefits for retirement savings. Keep in mind that you have until April 15th, 2022, to add additional contributions to your 2021 account! 

The most common business write off would be charitable gifts and donations. If your company participates in any yearly charitable galas, this can be deducted. The organization must have a 501(c)(3) non-profit status to be valid.

Clients who pay self-employed individuals at least $600 per year now receive a Form 1099-NEC, but if the money is transferred via Venmo, PayPal, or another comparable payment channel, a new tax form may surface.

Want to reference all of this information in the future? We have created a downloadable Tax Preparation Checklist PDF to keep on hand during your filing period!