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Preparing Your Taxes: A Checklist

ByWallstreet Observer

Quick answer

  • Gather all income statements (W-2s, 1099s) and expense records.
  • Determine your filing status.
  • Calculate your estimated tax liability or refund.
  • Identify potential deductions and credits.
  • File on time or request an extension.
  • Double-check all information before submitting.

What to check first (before you file or change withholding)

Filing Status

Your filing status significantly impacts your tax brackets, standard deduction amount, and eligibility for certain credits. The most common statuses are Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er).

  • What to check: Ensure you are using the most advantageous filing status for your situation. For example, if you are married, filing jointly often results in a lower tax bill than filing separately, but there are exceptions.
  • Good looks like: You’ve reviewed the IRS definitions and chosen the status that best reflects your personal circumstances for the tax year.
  • Common mistake: Using an incorrect filing status because you weren’t aware of the specific requirements for each. This can lead to an inaccurate tax return.

Income Sources

You need to account for all income received throughout the tax year, not just from your primary job. This includes wages, salaries, tips, bonuses, interest, dividends, capital gains, rental income, and any freelance or gig work income.

  • What to check: Collect all relevant tax forms from employers, financial institutions, and any other sources that paid you. This includes W-2s, 1099-NEC, 1099-INT, 1099-DIV, and 1099-B.
  • Good looks like: You have a complete list of all income sources and the corresponding documentation.
  • Common mistake: Forgetting to report all income, especially from side hustles or investments. This can result in penalties and interest.

Withholding or Estimated Payments

Taxes are typically paid throughout the year via withholding from your paycheck or through estimated tax payments if you are self-employed or have significant income not subject to withholding.

  • What to check: Review your W-4 form with your employer to ensure the correct amount of tax is being withheld. If you make estimated payments, confirm you are on track with your quarterly filings.
  • Good looks like: Your withholding is set up to closely match your actual tax liability, avoiding a large balance due or an excessive refund.
  • Common mistake: Under-withholding, leading to a surprise tax bill and potential penalties. Conversely, over-withholding means you’ve given the government an interest-free loan.

Deductions and Credits

These are crucial for reducing your taxable income and your overall tax bill. Deductions lower your taxable income, while credits directly reduce the amount of tax you owe. Common examples include the Child Tax Credit, Earned Income Tax Credit, student loan interest deduction, and medical expense deductions.

  • What to check: Research all potential deductions and credits you might be eligible for based on your income, family situation, and expenses. Keep records to support any claims.
  • Good looks like: You’ve identified all applicable deductions and credits and have the necessary documentation to claim them.
  • Common mistake: Missing out on valuable deductions or credits because you weren’t aware of them or didn’t keep proper records.

Deadlines and Extensions (General)

The primary tax deadline in the U.S. is typically April 15th. If this date falls on a weekend or holiday, it is pushed to the next business day. You can also request an extension to file, but this is not an extension to pay.

  • What to check: Note the current year’s tax deadline and understand the process for requesting an extension if needed.
  • Good looks like: You are aware of the filing deadline and have a plan to meet it or have initiated the extension process well in advance.
  • Common mistake: Missing the deadline entirely, which can lead to significant penalties and interest charges.

Step-by-step (simple workflow)

1. Gather Your Documents: Collect all W-2s, 1099s (for freelance income, interest, dividends, etc.), and any other income statements. Also, gather records of deductible expenses (e.g., medical bills, charitable donations, business expenses).

  • What “good” looks like: All income statements and expense receipts are organized and readily available.
  • Common mistake: Starting the process without all necessary documents, leading to delays and potential errors. Avoid this by creating a checklist of expected documents and systematically collecting them.

2. Choose Your Filing Status: Determine which filing status applies to you (Single, Married Filing Jointly, Married Filing Separately, Head of Household, Qualifying Widow(er)).

  • What “good” looks like: You’ve selected the filing status that accurately reflects your situation and is most beneficial.
  • Common mistake: Using an incorrect filing status. This can be avoided by carefully reading the IRS definitions for each status.

3. Calculate Your Gross Income: Sum up all sources of income reported on your W-2s and 1099s, as well as any other income you received.

  • What “good” looks like: Your total gross income is accurately calculated from all sources.
  • Common mistake: Forgetting to include all income streams, especially from side jobs or passive investments. Double-check every income document.

4. Determine Your Adjusted Gross Income (AGI): Subtract “above-the-line” deductions (like student loan interest, IRA contributions, self-employment tax deduction) from your gross income.

  • What “good” looks like: Your AGI is calculated correctly, reflecting eligible deductions.
  • Common mistake: Not claiming all eligible above-the-line deductions. Review the IRS guidelines for these deductions carefully.

5. Choose Between Standard or Itemized Deductions: Decide whether to take the standard deduction or itemize your deductions. You should itemize if your itemized deductions exceed the standard deduction amount for your filing status.

  • What “good” looks like: You’ve calculated both and chosen the option that provides the larger deduction.
  • Common mistake: Not calculating both and simply taking the standard deduction when itemizing would be more beneficial.

6. Calculate Your Taxable Income: Subtract your total deductions (either standard or itemized) from your AGI.

  • What “good” looks like: Your taxable income is accurately calculated after subtracting deductions.
  • Common mistake: Errors in calculating the total deductions. Ensure all figures are correct before proceeding.

7. Calculate Your Tax Liability: Use the appropriate tax brackets for your filing status to determine the amount of tax owed on your taxable income.

  • What “good” looks like: Your tax liability is calculated based on the current year’s tax tables.
  • Common mistake: Using outdated tax tables or misapplying the tax brackets. Always use the most current IRS tax rate schedules.

8. Apply Tax Credits: Subtract any eligible tax credits from your tax liability. Credits directly reduce your tax bill dollar-for-dollar.

  • What “good” looks like: You’ve identified and applied all tax credits you qualify for.
  • Common mistake: Overlooking valuable tax credits like the Earned Income Tax Credit or education credits. Research credits based on your income and family situation.

9. Determine Your Refund or Balance Due: Compare your total tax liability (after credits) with the amount of tax you’ve already paid through withholding or estimated payments.

  • What “good” looks like: You clearly see whether you are owed a refund or owe additional tax.
  • Common mistake: Miscalculating payments made. Keep track of all withholding statements and estimated tax payment records.

10. Review and Sign: Carefully review your entire tax return for accuracy, ensuring all numbers are correct and all required forms are included.

  • What “good” looks like: You’ve proofread your return thoroughly and are confident in its accuracy.
  • Common mistake: Typos or mathematical errors that can lead to processing delays or audits. Take your time and double-check every entry.

11. File Your Return: Submit your tax return electronically (e-file) or by mail by the deadline.

  • What “good” looks like: Your return is successfully submitted on time.
  • Common mistake: Filing late without an extension. This incurs penalties. E-filing is generally faster and more secure.

Common mistakes (and what happens if you ignore them)

| Mistake | What it causes | Fix

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