There are a few things you can do to help your tax return process go smoothly. Accurately reporting income is one of them.
No one is a fan of filing taxes. For the taxpayer, the process of filing can already be confusing. So to add complication to the mix with things that can be seen as red flags to the IRS should be avoided at all costs. No one needs an audit, especially where it is completely unnecessary. Being careful not to underreport income can help you avoid IRS trouble at tax filing time.
In general, all income is taxable.
This does not include income that is specifically excluded, like inheritances or certain gifts, for example. Problems arise when the income you claim doesn’t match up with what the IRS shows as your income, in data it has received in an information return such as a Form 1099 or W-2.
If you get a statement of income that’s incorrect - say from an employer - be sure to contact them right away for a corrected version of that statement. You and the IRS will need accurate statements to keep your tax return process on track.
Depending on your situation, make sure you include income from the following forms:
· 1099-B: This is the form where financial institutions report capital gains.
· 1099-DIV: The form where financial institutions report dividends.
· 1099-MISC: The form used to report various types of income, such as royalties, rents, or payments to independent contractors.
· 1099-R: On this form, financial institutions report withdrawals from tax-advantaged retirement accounts.
· Form 1099-INT: Financial institutions report interest income on this form.
· Form SSA-1099: The form on which the Social Security Administration reports Social Security benefits (part of this could be taxable, depending on your income level. Ask your accountant for details).
· Form W-2: This is the form where employers are required to give information such as total annual compensation, payroll taxes and contributions to retirement accounts.
If you have income for which there is no form, such as rent you received on a vacation home you own, you still must report that. (Questions? Your accountantcan help you.)
Being transparent, thorough and educated on what’s needed is key in successful tax filing. It’s why your accountant is there. He or she is key to avoiding any problems or delays.