Tax Document Showdown: What You Need vs. What You Don’t

As one year ends and another begins, you’ll find yourself inundated with tax documents. The flood of paperwork can be hard to manage. To make things more confusing, you don’t need all of it to file your taxes successfully.

This blog will help you through the first step of filing: figuring out which documents you need (and which ones you don’t).

Tax Documents You Need

Before you begin filing your taxes, make sure you have each of these key forms:

Consolidated 1099s

A 1099 consolidated tax statement reports taxable investments that your business may have. There are more than 20 different types of 1099s. If you’re interested, CNET offers a great breakdown of each.

Consolidated 1099s may include some or all of the following:

  • 1099-B: Brokerage statements
  • 1099-DIV: Dividends
  • 1099-INT: Interest income
  • 1099-OID: Original issue discount (issued when bonds are sold for less than their mature value)

These aren’t the standard monthly or quarterly statements sent out throughout the year — they should say “1099” or “2022 Tax Reporting Statement” near the top.

Your business can face steep penalties if you don’t report your 1099s and pay the required taxes. If the IRS determines that you willfully chose not to file your 1099, those penalties can be excessive. In particular, it’s important to provide brokerage statements to ensure that your tax reporting is accurate.

Form 1099-B alone is often inadequate for complete brokerage reporting. Our tax professionals can work with you to guarantee that your company’s taxes are filed entirely and accurately.

Working with tax documents

Personal or Investment Property

The IRS requires you to submit information on any property bought or sold during the tax year.

We’ll need the closing statement if you moved or sold a personal or investment property. If you moved or sold a private residence, we’ll need the closing statements for the house you sold and the home you purchased during the year.

Before filing, ensure you have all closing statements on hand and that those closing statements are accurate. Forgetting key information or submitting inaccurate information can lead to significant tax complications.

HSA Information

A health savings account (HSA) can be a great way to save money and plan for retirement. You can make tax-free contributions for medical expenses, and any interest the HSA earns isn’t taxable.

However, you need to report both distributions (withdrawal of funds) and contributions at the end of the tax year. You’ll receive a 1099-SA reporting distributions and a 5498-SA reporting contributions. 5498-SA’s include contributions made via wage deferrals. The 5498-SA isn’t necessary to prepare a return but if received, turn it in for review.

It’s vitally important to report your HSA information accurately. You may face an audit and/or tax penalties if you don’t.

Direct Deposit Information

Whether you owe money to the IRS or get a refund, you’ll want to have your direct deposit information handy. Using direct deposit saves you time and spares you the possible complications of paying or receiving a refund by check.

To avoid payment complications, double-check that your direct deposit information is accurate. If your information has changed from the previous year, ensure it is updated.

Huberty employee working with client's finances

Documents You Don’t Need

While it’s generally better to be safe than sorry when it comes to gathering information for tax purposes, there are some documents you probably don’t need:

Medical Receipts

Some people may tell you to save all medical receipts for tax season, but most taxpayers don’t need medical receipts. Unless you know you itemized deductions and took advantage of itemizing your medical expenses in the past, don’t waste your time gathering these.

You must both itemize deductions and have out-of-pocket medical expenses that exceed 7.5% of your total income before a dollar of medical costs begins reducing your taxable income.

If you’re unsure if you’re near this limit, provide us with your total out-of-pocket medical expenses. Your tax professional will let you know if you could benefit from this deduction and inquire about further information.

Charitable Donation Receipts

Most people end up not needing charitable donation receipts, either. All your charitable donation receipts are only a benefit in 2022 if you itemize deductions.

Although you need to hang onto receipts if you take this deduction for substantiation in the event of an audit, you should only provide Vesta with the dollar amount of your total contributions.

Only provide us with individual receipts for donations over $2,000 to a single organization or noncash contribution receipts if total noncash contributions are $500 or higher.

Handle Tax Season with Confidence

Making sure your business stays compliant with all tax laws can be a challenge. A stress-free tax season starts with gathering all the necessary forms and documentation.

You don’t have to file your taxes alone. At Vesta, we’re committed to helping small business owners find success during tax season and beyond.

If you’re ready to hit tax season head-on, reach out to our expert tax advisors today!

Do you need a quick way to reference the items above? Use this infographic outlining the tax documents you need vs. the ones you don’t.

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