NEW YORK – Among the credit card bills, post-holiday sales fliers and junk mail this month will be a number of letters that consumers will want to save. These contain the W-2s, 1099s and 1098s, and other forms Americans need for their annual April taxpaying ritual.
Eric Tyson, a financial counselor and co-author of “Taxes for Dummies,” suggests that consumers set up a file folder or large envelope to collect the incoming tax documents so they’re ready when the time comes to fill out income tax forms that are due April 15.
“When it’s all in one place, it’s easier to do your taxes,” Tyson said.
Taxpayers trying to pull their papers together at the last minute can make mistakes or miss valuable deductions, he said.
In fact, a study by the Government Accountability Office found that more than 2 million Americans overpaid their federal taxes by an average of $438 because they claimed the standard deduction rather than writing off items such as mortgage interest payments, local taxes and charitable contributions.
Tyson also suggests consumers “take at least a glance” at the incoming tax documents to make sure they’re correct.
“You don’t want to wait until April 14, because you won’t be able to get errors corrected in time to get your return filed on time,” he said.
The form that’s the most important at tax time for workers is the W-2, which employers provide. W-2s contain information on workers’ total earnings, as well as the amount of federal, state and local taxes that have been withheld. Most employers distribute W-2s at their workplaces, but some mail them to workers.
Other forms likely to show up in mailboxes in coming weeks are 1099-INT forms, on which financial institutions report the amount of interest paid to consumers, and 1099-DIV forms, where dividend earnings are recorded.
Financial institutions send copies of many of these tax forms directly to the Internal Revenue Service, said Lonnie Gary, a committee chairman with the National Association of Enrolled Agents in Washington, D.C. Enrolled agents are licensed by the government to assist consumers with their taxes.
“The government uses these third parties to verify many sources of income,” Gary said. That should help motivate accurate reporting by consumers, he added.
Gary, who works as a tax manager with American Express Tax and Business Services in Mountain View, Calif., said workers who haven’t received their W-2 forms by the first week in February should call their employers and ask when they will be available.
“They go astray more often than you’d think,” he said. “People move, change addresses, but the W-2 goes out to the previous address.”
If a company has gone out of business, workers generally can use their final pay stubs to prepare their taxes, he said.
Peggy Munro, an enrolled agent in Montpelier, Vt., who also wrote sections for the “Taxes for Dummies” book, pointed out that there are a variety of 1099 forms that taxpayers may need.
In addition to those with information about taxable interest and dividend payments, there are 1099s used to report sales of real estate and stocks, pension and Individual Retirement Account distributions, and Social Security. Other 1099 forms are used to report unemployment compensation or state and local tax refunds.
“Basically, if it says 1099 on it, you want to keep it” for preparing tax forms, Munro said.
While most of the forms that arrive in the mail have to do with income, there are some that will be of help to consumers who itemize their taxes and claim deductions.
The most common form in this category is the 1098, which financial institutions issue to report the interest that consumers paid on their home mortgages, she said. Some 1098s also show real estate taxes paid from the homeowner’s escrow account. There’s also a 1098-E, an interest statement for those paying back student loans.
“People should also expect to receive statements for charitable donations,” Munro said. “For donations of $250 or more, the charity is required to give you a receipt. Many (charities) don’t mail them out until January of the following year.”
She added: “If you’ve made those contributions and haven’t received receipts, get on the phone and ask for them. A canceled check is no longer proof for the deduction.”
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