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The Ultimate Tax Preparation Checklist

By Brandon Leuangpaseuth
January 21, 2021

This is a guest post by one of our partners, Keeper Tax. This post contains partner affiliate links. For more information on how we work with partners, see disclosures at the bottom of this page. 


For most, the idea of filing taxes isn’t exactly fun. But there are tons of benefits to planning ahead. It could help you get the most out of your tax refund or — if you’re self-employed — get bigger tax savings with write-offs.

Take a look at this tax preparation checklist for tips for how to save time and money when tax season rolls around.

  1. Prep the Important Paperwork
  2. Get Your Deductions In Order
  3. Take Advantage of Business Expense Deductions
  4. Set Money Aside To Pay For Your Taxes
  5. Estimate Out How Much You’ll Owe (Or Get Back)
  6. Plan Your Quarterly Tax Payments
  7. File Your Taxes!

Prep the Important Paperwork

No matter who does your taxes, you need to have all your files and forms together before getting started. Here’s a breakdown of what to prepare:

Personal Information

The IRS requires you to show who’s filing and who is covered in your tax return. To do that, you’ll need the Social Security Numbers and the dates of birth for you, your spouse, and all your dependents. (Remember, dependents can include elderly parents and non-family members living in your household.)

Income Documents

After organizing all your personal info, you can start gathering all the documents that verify the money you made in 2020.These documents can include:

  • W-2 income: If you’re a traditional employee, your employer will have to send you a W-2 by January 31st.
  • All the 1099 forms: Depending on what type of work you’ve done or how the income was earned, you’ll get different kinds of 1099 forms. For example, the 1099-MISC is for miscellaneous income, the 1099-NEC is for contracting work, 1099-C is for income from the sale of the property, 1099-DIV is for dividends, and so on. If you received more than $20,000 in gross income or payment and over 200 separate payments in a calendar year, you will receive a PayPal 1099-K. I know it can be confusing, but getting these forms organized will make your tax journey so much smoother!

Get Your Deductions In Order

The government offers a number of different deductions to help people lower their tax bills. If any of the below expenses apply to you, be sure to keep a good record of them to get tax credits.

Donations For Charity 

As part of the 2020 pandemic relief CARES act, everyone can claim up to $300 in charitable donations on top of the standard deduction. That means everyone can benefit from charitable donations this year.

Donating to registered non-profit organizations can reduce your tax bill. This includes cash or value of donated property, miles driven, and various other out-of-pocket costs. 

Noncash donations may need you to keep a description of what you donated, a receipt from the charitable organization, the date and location of the contribution, and its fair market value. Here is a complete breakdown of the charitable donations deduction.

Although charitable donations are great for lowering your taxable income, it should be noted that these deductions typically can’t exceed 60% of your adjusted gross income. 

Child Care Costs

Spending money on a child or any dependent can add up fast. Thankfully, you can qualify for this deduction if you paid a daycare center, babysitter, or other care providers to watch over your child who is under the age of 13. For one child or dependent, you are allowed to take 35% of qualifying expenses of $3,000, or up to $6,000 for two or more children. Take note of how much you paid, the provider’s name, address, and tax ID.

Home Mortgage Interest

This deduction lets homeowners deduct the interest they pay on any loan used to set up, buy, or improve their home, from their taxable income. Here, you’ll need the records that track all the interest you paid. You can use forms 1098 to take advantage of this deduction. 

Education Expenses

Keep clean records of education expenses that are essential for taking a course or program like:

  • Tuition and fees 
  • Student loan interest 
  • Qualified student loan
  • Education expenses (For example, the cost of a textbook bought from an off-campus bookstore is a qualified education expense)
  • Qualifying work-related education
  • Mandatory education by the employer or by law
  • Education to improve or maintain skills

Non-essential fees like mileage, transportation costs, or room and rent, are not included. You can use Form 1098-T to deduct qualifying education costs.

Adoption Costs

If you recently adopted a child, you get a nice tax benefit for qualified adoption costs that you paid to adopt them. Record the Social Security Number of the child, adoption fees, legal costs (courtroom and attorney fees), medical, and travel expenses. 

Note: You’ll need to keep proper documentation of all your receipts, invoices, and financial documents to give to the IRS.

Investment Interest Expense

An investment interest expense is any interest you pay on a loan or borrowed money to purchase property for investment purposes. For instance, taking out a loan to buy stocks. 

Here’s how it works: If your expenses are lower than your net investment income, the entire investment interest expense is eligible for a deduction. However, if your interest expenses are greater than the net investment income, you can deduct the expenses equal to the net investment income amount. You’ll need to file a Form 4952 to claim a deduction for your investment interest expense.

Dental and Medical Costs 

Qualified medical and dental expenses are ones you paid during the tax year for yourself, your spouse, or your dependents. You’re permitted to write-off out-of-pocket payments to doctors, dentists, psychiatrists, surgeons, and chiropractors. 

In 2020, with this deduction, you’re allowed to deduct the amount of your total medical expenses that exceed 7.5% of your adjusted gross income on a Schedule A. 

Theft And Casualty Losses 

You can deduct a casualty or any destruction, damage, or loss of your property from any sudden, unexpected, or unusual event like a natural disaster (flood, volcanic eruption, earthquake, tornado, hurricane). You can also deduct theft losses relating to your home, household items, and vehicles from your federal income tax return. Keep track of the amount or cost of the damages and insurance reimbursements. 

Miscellaneous Deductions 

There are a lot of different costs you can deduct, like union dues or unreimbursed employee expenses. An unreimbursed business expense is any cost that is both “ordinary” and “reasonable” that you make for your job and is not reimbursed by your employer. This includes expenses like work supplies, publications, continuing education, travel, seminars, uniforms, etc.

Take Advantage of Business Expense Deductions

If you received a 1099, then you can claim business expense deductions.

Here is a list of qualifying deductions form on the IRS’ website. Be sure you keep clear records of all your eligible business expenses for tax deductions. There are many ways you can track your write-offs. This free 1099 excel template is an easy way to manually record your expenses. You can also use a business write-off tracking app like Keeper Tax which will automatically scan your bank statements and credit card statements for you. 

The Myth Of Paper Receipts

If you are a business owner or self-employed worker who plans to itemize your deductions, you should have clean records of your business expenses. There’s this common misconception out there that you need to hold onto your physical receipts to track eligible expenses, but this is wrong. The IRS has caught up with the times and allows business owners to use bank statements as a valid form of proof for tax deductions. So say goodbye to hoarding your paper receipts for taxes!

Set Money Aside To Pay For Your Taxes

If you’re working as a W-2 employee, the IRS requires your employers to report wage and salary information for employees on Form W-2. The W-2 would have all the amount of state, federal, and other taxes retained from your paycheck. With every paycheck, you’ll have taxes withheld from each one. The information on your W-2 is important when preparing your tax return because it will determine your tax refund. 

If you received some form of unemployment benefits this year due to the COVID-19, you will owe taxes on the money you received. Unemployment benefits are untaxed and are considered to be taxable income. Although you don’t have to pay Medicare or Social Security taxes while you are getting unemployment benefits, you’re required to pay some federal income taxes.

In 2020, the government sent up to $1,200 in stimulus checks to millions of Americans after the pandemic shut down most of the country. Thankfully, this stimulus check is not a part of your taxable income. 

Self-employed workers who are paid in full, without any taxes withheld from their payments, will need to set money aside for their income. The general recommended rule-of-thumb is to save 30-40% of what you make for paying taxes. Use this free calculator to determine how much money you should set aside for your self-employment taxes.

Estimate Out How Much You’ll Owe (Or Get Back)

It’s a great idea to estimate how much you’ll be getting in a tax refund or how much you’ll be paying in taxes. This is helpful for setting expectations, plus you’ll likely be able to notice if there’s a mistake.

Use this income tax calculator to see how much you’ll owe the government at the end of the tax year. Their tax calculator is always up-to-date on the latest tax laws. 

Plan Your Quarterly Tax Payments

Depending on the work you finish or how you were paid, you may have to plan on making estimated tax payments. You have to pay quarterly taxes if you aren’t having your income withheld and you make more than $1,000. Small business people, freelancers, and independent contractors usually have to pay quarterly taxes as they do not have taxes automatically withheld from their earnings. 

To calculate how much you’ll make in quarterly tax payments, add up your total tax liability for the year (self-employment, income, and whatever other taxes) and split the total by four. You can also use this free estimated tax calculator to find out how much your payments are. 

Be careful, because you may be charged an underpayment penalty if you don’t pay enough tax by the due date of each payment period (even if you’re supposed to get a refund when you file your income tax return at the end of the year). 

The due dates for quarterly taxes are: 

  • Quarter 1 – April 15th
  • Quarter 2 – June 15th
  • Quarter 3 – September 15th
  • Quarter 4 – January 15th

Note: Due to the pandemic, the IRS extended the deadline for quarterly tax payments in 2020. 

File Your Taxes!

When you’re ready, the last step is filing your taxes with the IRS and your State. You have three choices when it comes to filing your taxes:

    1. You can do it yourself by completing Form 1040 and following the IRS instructions. When you mail in the form to the IRS, you’ll also send any payment or taxes you owe.
    2. Use a tax filing software such as H&R Block, TurboTax, or Keeper Tax.
    3. Hire a tax professional who will handle your filing, and work with you to maximize your refund. (Note: This route tends to be pricier.)

Can You Do Your Taxes For Free?

The answer is yes! As we mentioned before, you can manually prepare the forms or you can e-file at no cost using IRS Free File. It’s safe, fairly straightforward, and there are no fees. 

For simple, basic tax returns (a W-2, with kids, education costs, and a few more), you can use H&R Block. You can file the Form 1040 and if you qualify for them, they offer a few common tax breaks.

What Is The Average Cost For Income Tax Preparation?

A lot of people prefer to use tax filing software to get it done online. The price varies depending on what software you use and what you need to file. For more complex income tax returns for homeowners, freelancers, and self-employed workers, fees can range from $29.99-79.99 + state filing costs. 

If you want to hire a tax professional for a basic tax return, the average cost ranges from about $176 to $456. This includes a standard 1040 and state return with no itemized deductions. 


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