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Yes, it’s that time again: Tax Day is approaching. When April 15th rolls around, it’s the deadline for filing returns.

This isn’t a task you want to leave for the night before. Taxes can be complex, and it can be time-consuming to complete even a fairly simple return. Preparing in advance can be an excellent idea.

Whether you plan to file on your own or use a professional tax service, you will need to gather a number of forms and documents. This checklist will help you pull together the information and paperwork you need to make the process go that much more smoothly.

The Basics of Filing Taxes

In a nutshell, filing your taxes tracks your income, taxes already deducted during the year, any credits and deductions, and other factors that impact what you may owe.

Below, you’ll learn about what documents you need to file your income taxes. The Internal Revenue Service (IRS) collects taxes from any business or individual that receives a regular monthly income. There are currently seven different tax brackets that divide individuals according to their annual earnings.

Of course, each person’s situation is unique, with different earnings, deductions, and circumstances that may impact how much they owe (or get refunded, in some cases). You can explore an in-depth guide to the 2025 tax season for more details, but now, consider the information you’ll need to collect before you can finalize your return.

Personal Information

First on your tax prep checklist is to gather some basic information about yourself and (if applicable) your spouse and children. This includes:

•   Your Social Security or tax ID number

•   Your spouse’s Social Security or tax ID number and birthdate

•   Any identity protection PINs issued to you or family members by the IRS

•   Your bank account number and routing number for the deposit of any refund you may be due or payment you owe, it you choose to pay that way

•   Any foreign residency and reporting details, if that applies to you.

Dependents’ Information

If you have dependents, you’ll want to gather similar details about them, as above. The IRS defines a dependent as a qualifying child (who is either under age 19 or under age 24 if they’re a full-time student), or could be any age if considered to be permanently disabled. A qualifying relative can be a relative (say, a sibling or parent) who, if they have income, does not provide more than half of their own annual support. (One note: A spouse cannot be claimed as a dependent.)

In addition to dates of birth and Social Security or tax ID numbers, you will need records of child care expenses (and providers’ tax ID numbers), if applicable; details of earnings of dependents; and potentially form 8332 relating to custodial agreements for children, as needed. (You’ll learn a bit more about possible family-related tax deductions and credits below.)

Sources of Income

Next on the tax preparation checklist is to gather paperwork about your sources of income. Typically, this means W-2 and/or 1099 tax forms.

•   For full-time employees, this will often be a W-2 form.

•   For those who are self-employed (such as freelance and contract workers), 1099s will be needed. These are forms that document payment of funds from different entities.

•   If you received payments for goods and services from an app or online platform, you might receive a 1099-K form if your earnings cross a certain threshold.

•   If you received unemployment compensation (or any state or local income tax refunds), you’ll want to make sure you have a 1099-G reflecting these earnings.

•   If you’ve earned interest or dividends, or sold investments, you will want to collect your 1099 forms that track these amounts.

•   You will also need to pull together any 1099 forms that document Social Security or income from a pension, IRA, or annuity.

•   Other forms of income will need to be accounted for as well, including jury duty, pay, prizes, awards, gambling winnings, trust income, passive income (such as earnings on a rental property you own), and royalties, among others.

Types of Deductions

Now that you’ve covered what you earned on the tax document checklist, it’s important to track possible deductions, which can lower your tax burden. Essentially, when you take a deduction, you lower the amount of income that will be taxed.

Many of these deductions will involve 1098 documents. Here are some of the more common tax deductions possible:

•   Medical expenses: You may be able to deduct some medical expenses, so it’s wise to gather records of how much you paid. If your medical bills exceed 7.5% of your adjusted gross income, and you choose to itemize your deductions (rather than take the standard deduction), you may be able to deduct some of these expenses.

•   IRA contributions: You may be able to deduct your contributions to a traditional individual retirement account (IRA). However, the deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds a certain level.

•   Mortgage and property Taxes: You may be able to deduct your property taxes and the interest you paid on your mortgage if you itemize, so be sure to gather your paperwork related to homeownership.

•   Charitable donations: If you itemize, you may be able to deduct any money or items you donated to a charity from your taxable income.

•   Car expenses: If you’re self-employed and use your car exclusively or partially for work, you may be able to write off all or some of your car expenses.

•   Educational expenses: Student loan interest (up to $2,500) is tax deductible. If you are self-employed, you may be able to deduct education expenses, provided the education improves your business or is required by law.

•   Home office costs: If you’re self-employed, you may be able to deduct expenses related to maintaining a home office.

•   State, local, and sales taxes: If you itemize, you may be able to deduct the state and local general sales tax you paid during the year, or the state and local income tax you paid during the year.

Tax Credits

Before you wrap up your tax prep checklist, you’ll want to collect any paperwork that could help you snag tax credits. As for deductions vs. tax credits, a deduction lowers your taxable income, while a credit gives you a dollar-for-dollar deduction in your tax liability. So if you can claim a $2,500 credit, that means your taxes owed are reduced by $2,500.

Here’s a look at some credits that can help you save on your taxes.

Student Credits

You may want to look into the following:

•   American opportunity tax credit: You may be able to receive up to $2,500 as a credit for qualifying educational expenses during the first four years of higher education.

•   Lifetime learning credit: You may be able to receive up to $2,000 per year as a credit for qualifying tuition and expenses.

Family and Dependent Credits

Consider whether you are eligible for the:

•   Child tax credit: This is worth up to $2,200 per qualifying child under age 17 for tax years 2025 and 2026.

•   Child and dependent care credit: If you needed child or dependent care in order to work, you may be able to get back some of your expenses with this credit.

•   Earned income tax credit (EITC): For low- to middle-income workers, the EITC could be up to $8,046 for 2025, and up to $8,231 for 2026, depending on qualifying factors.

•   Adoption credit: If an adoption was finalized in 2025, the adoptive parents may be eligible for a federal tax credit of up to $17,280. For adoptions finalized in 2026, the adoptive parents may be eligible for a federal tax credit of up to $17,670.

Homeowner Credits

•   Home energy tax credits: For tax year 2025, you might be able to take a credit of up to 30% on the costs of clean, renewable energy systems/equipment for your home, up to a limit. Most home energy tax credits will not be available for the 2026 tax year (with a few exceptions), under the One Big Beautiful Bill.

Missed Deadline Penalties

Here’s another reason to prioritize this tax preparation checklist: If you don’t have your documents gathered and your return prepared, you might file late…or not be filing at all.

There are various penalties involved if you don’t make the filing deadline and/or you don’t pay the taxes you owe on time. Here’s how they break down:

•   If you owe taxes and don’t file on time, the penalty is 5% of taxes owed for every month your return is late. The penalty won’t exceed 25% of your unpaid taxes.

•   If you file more than 60 days after the filing due date, the minimum penalty is $525 (for 2025 tax returns filed in 2026) or 100% of your unpaid tax, whichever is less.

•   If you file your taxes (or request an extension) on time but don’t pay the taxes you owe, the late payment penalty is 0.5% of taxes owed for every month the payment is late. The penalty won’t exceed 25% of your unpaid taxes.

•   For any months in which both the late-payment and late-filing penalties apply, the late-filing penalty is reduced by 0.5% to 4.5%.

Interest also accrues on unpaid taxes, adding to the cost. Since all of this can cost you money and create considerable stress, it’s a good idea to get a head start so you have your tax prep documents together and can file on time.

The Takeaway

Filing taxes can be complicated and require gathering various forms and figures. It’s wise to start early and collect information related to your income, dependents, and possible deductions and credits.

Additionally, being prepared in advance to receive any refunds or make any potential subsequent tax payments is important. It can be wise to have a checking and savings account that earns you interest while making it simple to track your cash.

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CN-Q425-3236452-142

Like a traditional 401(k) plan, a profit-sharing 401(k) plan is an employee benefit that can provide a vehicle for tax-deferred retirement savings. But the biggest difference between an employer-sponsored 401(k) and a profit-sharing 401(k) plan is that in a profit share plan, employers have control over how much money — if any — they contribute to the employee’s account from year to year.

Here’s what employees should know about a profit-sharing 401(k) retirement plan.

How Does 401(k) Profit Sharing Work?

Aside from the way employer contributions are handled, a profit-sharing 401(k) plan works similarly to a traditional employer-sponsored 401(k). Under a 401(k) profit share plan, as with a regular 401(k) plan, an employee can allocate a portion of pre-tax income into a 401(k) account, up to a maximum of $23,500 in 2025 and $24,500 in 2026. Those 50 and older can contribute an additional $7,500 in catch-up contributions, in 2025 for a total of up to $31,000, and an additional $8,000 in catch-up contributions in 2026 for a total of $32,500. In both 2025 and 2026, those aged 60 to 63 can make special catch-contributions of up to $11,250 (instead of $7,500 and $8,000 respectively), for a total of $34,750 in 2025 and $35,750 in 2026, thanks to SECURE 2.0.

At year’s end, employers can choose to contribute part of their profits to employees’ plans, tax-deferred. As with a traditional 401(k), maximum total contributions to an account must be the lesser of 100% of the employee’s salary or $70,000 in 2025 and $72,000 in 2026, per the IRS. In 2025, the limit is $77,500 for those 50 and up, and $81,250 for those aged 60 to 63, because of SECURE 2.0. In 2026, the limit is $80,000 for those 50 and older, and $83,250 for those aged 60 to 63.

There are several types of 401(k) profit-sharing setups employers can choose from. Each of these distributes funds in slightly different ways.

Pro-Rata Plans

In this common type of plan, all employees receive employer contributions at the same rate. In other words, the employer can make the decision to contribute 3% (or any percentage they choose) of an employee’s compensation as an employer contribution. The amount an employer can contribute is capped at 25% of total employee compensation paid to participants in the plan.

New Comparability 401(k) Profit Sharing

In this plan, employers can group employees when outlining a contribution plan. For example, executives could receive a certain percentage of their compensation as contribution, while other employees could receive a different percentage. This might be an option for a small business with several owners that wish to be compensated through a profit-sharing plan.

Age-Weighted Plans

This plan calculates percentage contributions based on retirement age. In other words, older employees will receive a greater percentage of their salary than younger employees, by birth date. This can be a way for employers to retain talent over time.

Integrated Profit Sharing

This type of plan uses Social Security (SS) taxable income levels to calculate the amount the employer shares with employees. Because Social Security benefits are only paid on compensation below a certain threshold, this method allows employers to make up for lost SS compensation to high earners, by giving them a larger cut of the profit sharing.

Pros and Cons of 401(k) Profit Sharing

There are benefits and drawbacks for both employers and employees who participate in a profit-sharing 401(k) plan.

Employer Pro: Flexibility of Employer Contributions

Flexibility with plan contribution amounts is one reason profit-share plans are popular with employers. An employer can set aside a portion of their pre-tax earnings to share with employees at the end of the year. If the business doesn’t do well, they may not allocate any dollars. But if the business does do well, they can allow employees to benefit from the additional profits.

Employer Pro: Flexibility in Distributions

Profit sharing also gives employers flexibility in how they wish to distribute funds among employees, using the Pro-Rata, New Comparability, Age-Weighted, or Integrated profit sharing strategy.

Employer Pro: Lower Tax Liability

Another advantage of profit-share plans is that they may allow employers to lower tax liability during profitable years. A traditional employer contribution to a 401(k) does not have the flexibility of changing the contribution based on profits, so this strategy may help a company maintain financial liquidity during lean years and lower tax liability during profitable years.

Employee Pro: Larger Contribution Potential

Some employees might appreciate that their employer 401(k) contribution is tied to profits, as the compensation might feel like a more direct reflection of the hard work they and others put into the company. When the company succeeds, they feel the love in their contribution amounts.

Additionally, depending on the type of distribution strategy the employer utilizes, certain employees may find a profit-sharing 401(k) plan to be more lucrative than a traditional 401(k) plan. For example, an executive in a company that follows the New Compatibility approach might be pleased with the larger percentage of profits shared, versus more junior staffers.

Employee Con: Inconsistent Contributions

While employers may consider the flexibility in contributions from year to year a positive, it’s possible that employees might find that same attribute of profit-sharing 401(k) plans to be a negative. The unpredictability of profit share plans can be disconcerting to some employees who may have previously worked for an employer who had a traditional, consistent employer 401(k) match set up.

Employee/Employer Pro: Solo 401(k) Contributions

A profit-share strategy can be one way solo business owners can maximize their retirement savings. Once a solo 401(k) is set up with profit sharing, a business owner can put up to $23,500 a year into the account, plus up to 25% of net earnings, up to a total of $70,000 in 2025, and up to $24,500 in 2026, plus up to 25% net of earnings, up to a total of $72,000. This retirement savings vehicle also provides flexibility from year to year, depending on profits.

💡 Quick Tip: The advantage of opening a Roth IRA and a tax-deferred account like a 401(k) or traditional IRA is that by the time you retire, you’ll have tax-free income from your Roth, and taxable income from the tax-deferred account. This can help with tax planning.

Withdrawals and Taxes on 401(k) Profit Share Plans

A 401(k) with a generous profit-share plan can help you build your retirement nest egg. But what about when you’re ready to take out distributions? A 401(k) withdrawal will have penalties if you withdraw funds before you’re 59 ½ (barring certain circumstances laid out by the IRS) but the money will still be taxable income once you reach retirement age.

Additionally, like traditional 401(k) plans, a profit-sharing 401(k) plan has required minimum distribution requirements (RMDs) once an account holder turns 73.

Investors who anticipate being in a high tax bracket during their retirement years might choose to consider different strategies to lower their tax liability in the future. For some, this could include converting the 401(k) into a Roth IRA when doing a rollover. To do this, they first have to roll over the 401(k) to a traditional IRA. This is sometimes called a “backdoor Roth IRA” because rolling over the 401(k) generally does not subject an investor to the income limitations that cap Roth contributions.

An investor would need to pay taxes on the money they convert into a Roth IRA, but distributions in retirement years would not be taxed the way they would have if they were kept in a 401(k). In general, any 401(k) participant who qualifies for a Roth IRA can do this, but the additional funds in a 401(k) profit-share account could potentially make these moves that much more impactful in the future.

The Takeaway

A 401(k) profit-sharing plan allows employees to contribute pre-tax dollars to their retirement savings, as well as benefit from their employer’s profitability. But because profit-share plans can take multiple forms, it’s important for employees to understand what their employer is offering. That way, employees can work to create a robust retirement savings strategy that makes sense for them.

Another step that could also help you manage your retirement savings is doing a 401(k) rollover, where you move funds from an old account to a rollover IRA. You may want to consider this option if you have a 401(k) from a previous employer, for instance.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

FAQ

Can I cash out my profit-sharing?

You can cash out your profit-sharing 401(k) without penalty once you reach age 59 ½. Withdrawals taken before that time are subject to penalty. However, if you leave the company, you can roll over the profit-sharing 401(k) into an IRA without penalty as long as you follow the IRS rollover rules.

How much tax do you pay on profit-sharing withdrawal?

You pay regular income tax on profit-sharing withdrawals. Depending on what tax bracket you’re in, you might pay anywhere from 10% to 37%.

Is profit-sharing 100% vested?

Depending on your company, your profit-sharing contributions may be 100% vested right away, or they may follow a vesting schedule that requires you to work for a certain number of years before you have full ownership of your contributions.

Can I roll my profit-sharing plan into an IRA?

You can roll over your profit-sharing plan into an IRA when you leave your company. You can choose to have the funds directly transferred from your profit-sharing plan to an IRA, or you can have the money paid to you and then deposit the funds into an IRA yourself. Just be sure to complete the rollover within 60 days to avoid being taxed.