As a daily money manager, January and February are dedicated to gathering and organizing tax documents for my clients. So if you’re helping a senior in your life prep for tax season, here’s what you need to know.
Watch the Mail
During January and February, important tax-related documents will arrive in the mail. While you may be able to set mail aside to deal with later during most of the year, the first two months of the year, you need to watch the mailbox for items like:
- W-2 shows employment income if you are still working
- 1099-NEC stands for non-employee compensation paid to independent contractors
- 1099-INT documents interest received from a financial institution
- 1099-B reports gains and losses from stocks, bonds, and other securities sold through a broker
- 1099-R shows distributions made from pensions, annuities, IRAs, and other retirement plans
Some envelopes may be marked “Important Tax Documents,” but not all of them. Also, there may be notices from banking institutions that tax documents are available to download in the mail.
Get Organized
As all the tax documents start coming in, you need a system to keep track of everything. Have both a paper file of tax documents that arrive in the mail and a digital file for tax documents you download. These files can easily be shared with an accountant if taxes are being done by a professional.
Know the Math Basics
It can feel mind-boggling looking at tax forms and trying to figure it all out. There are two basic numbers you should know. First, the standard deduction. For tax year 2023 (filed in 2024), it’s $13,850 for single filers and $27,700 for joint filers. (If you are 65 or older, the standard deduction is $1,850 higher per person for married couples filing jointly; so if you and your spouse are both 65 or older, the standard deduction is $3,000 more. If your filing status is single and you’re 65 or older, you get an additional $1,850 – head of household- for your standard deduction.)
Knowing this can save you the time of itemizing everything. If you’re not sure, speak with a tax professional.
The other number you’ll need to know is your cost basis for any stocks, bonds, or securities you sold during the tax year. You will also need to report the sale of a home, but depending on the purchase price and improvements made, you may or may not be subject to capital gains tax.
Also, Know What Documents You Need to Ignore
Items like monthly bank or brokerage statements aren’t needed because you’ll get a 1099-B or 1099-R*. Likewise, if you’ve made contributions to an IRA or SEP, documentation is not required. A CPA only needs to know you have contributed.
Find Missing Items
In some cases, you’ll need to be proactive to get your tax documentation. For example, if you received unemployment, you may need to go online and print the 1099-G. Also, if you’ve contributed more than $250 to one non-profit, you will need documentation from them.
Check Your Stimulus Payment
Whether you received an Economic Impact Payment or not, you may be entitled to more. Also, failing to report the correct amount may delay the processing of your tax return.
Review Your Return Before Filing
It’s okay to hire a professional or use tax prep software if you feel overwhelmed. However, it’s still your tax return, and you’re still responsible for what’s in it. So be sure to review it carefully and ask the tax prep professional if you have any questions or concerns before filing it.
Beat the Scammers
Tax scammers are already plotting. One tactic is to file a return using your social security number. Fortunately, filing early takes away their opportunity to do that. Learn more about tax scammers and what to do about them.
What area of tax prep do you struggle with the most?
*Always speak to your accountant. Most CPAs send an annual tax organizer and questionnaire and request documentation based on your information from the previous year(s). If you don’t have an accountant, there are excellent resources for seniors, veterans, and those with low or moderate incomes. You can find out more information here about the IRS program and the AARP Foundation Tax-Aide.
