It's called income tax for a reason. Not only does the Internal Revenue Service (IRS) want to know about every cent you earned at your job, but income from every other source as well: self-employment, hobbies, investments, Social Security benefits, retirement income, sale of real estate and more. Not all of this income is taxed at the same rate and some of it won't be taxed at all. The IRS differentiates between earned income (salary and wages from a job) and unearned income (Social Security and retirement benefits, alimony, interest and dividends, etc.). Your tax preparer will help you differentiate between the two.
In most cases, you will be sent an official income statement from each income source. Earned income is reported as a W-2 from your employer or a 1099-MISC if you are self-employed. Each unearned income source has its own kind of 1099 statement, too, which you should receive as well. Bring those statements with you to the tax preparer's office.
Keep in mind that you may receive income from sources that don't generate official IRS income statements. Foreign companies may not report your income to the IRS, for example. Hobby income is often the same. Decrease your odds of an audit by honestly reporting all income, even that which the IRS may know nothing about.
Here is a partial list of the types of income you need to report. Bring along an income statement, pay stub, receipt, or other proof of income for each source:
- Income from an employer
- Self-employment income
- Foreign earned income
- Rental income
- Retirement income from an IRA, pension or annuity
- Social Security benefits
- Investment income from sale of stock, interest, dividends, etc.
- Unemployment benefits
- Gambling earnings
- State tax refunds
- Prizes and awards [source: H&R Block]
Once your tax preparer has added up all of your income, it's time to start chipping away at your taxable income with deductions and exemptions. Keep reading to learn what you need to bring to document your itemized deductions.