(This is an edited repost from September 15^th.)

 

            Well here we are, January and it is time to start getting your tax information ready. But what do you need? Twelve months have passed. With the economy the way it is many have already been thinking about their taxes, some haven’t.

 

            Getting things ready to take in to your tax preparer is sometimes a grueling event. Be it for a return filed on time, or for the extension you might still be working on. Now mater when you do this, most everybody is going to need to bring the same things.

 

 

ü  Be sure to include any changes in address, dependents, filing status, or any other substantive changes from the prior year which would have impact on this years return.

ü  W-2s from all jobs.

ü  Forms 1099 from all investments and bank accounts (be sure they are all accounted for as the IRS has a complete –sometimes- list).

ü  Brokerage statements, interest, dividends, etc.

ü  Student loan interest, child care expenses, tuition, and any other miscellaneous deductions/income.

ü  Summary of property taxes with copies of all individual items over $1,000.

ü  Summary of All valorem Taxes (property tax on cars) with copies of all individual items over $1,000.

ü  Form 1098 reporting home mortgage interest.

ü  Documentation of mortgage insurance

ü  Form K-1s from any estate(s), partnership(s), or S corporation(s) from which you’ve received an inheritance. Call and check if you are missing any, as these often do not arrive until March or April.

ü  Summary of all medical expenses with copies of all individual items/receipts over $1,000. Along with mileage, and any insurance reimbursements.

ü  Records of gambling profits and losses. To offset reportable profits, you must have an accurate log of expenses and losses including amounts, dates, and locations.

ü  Itemized record of charitable donations, including cash, checks and donated property.  Keep all receipts.  If value of donated property exceeds $500, an itemized list is necessary.

§  Example list: “12 shirts, 3 suits, and2 jackets” with fair market values, as opposed to a “bag of clothes,” will allow a true value for the items. (You can find my researched FMV guide at Fair Market Value Guide for Used Items (2008). Updated for this year –filing for 2008 returns)

§  Charitable gifts over $500 must include a receipt from the charity.

ü  A copy of last year’s tax return. (last three years if you  are a new client to your preparer)

ü  A list of financial goals and the last three years of returns, if seeking counsel.

 

Some additional items you may need to give:

ü  Alimony paid or received, including Social Security Number of recipient (save cancelled checks)

ü  Records of purchase and sale of a personal residence, including the settlement statement from closing (Keep records of all home improvements.)

ü  Schedule of estimated federal, state and local taxes paid during the year

ü  Child care expenses and provider information.  The tax identification number of the provider is required.

ü  Information on IRA contributions made or to be made for the tax year

ü  Summary of moving expenses, if eligible for the moving expense deduction

ü  Summary of casualty losses from fire, theft or natural disaster

ü  Receipts and records for all business-related income and expenses

ü  Job-related expenses, such as union or professional association dues, work clothing, tools, supplies, job-hunting and job-related education.

ü  Log book for business use of a vehicle.

ü  Other records relating to vehicles purchased or leased during the year for which you are claiming business expense deductions

ü  Records of all income from and expenses paid for rental real estate you own

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If You Can Answer Yes to the Following Questions, You Should Give All Related Documents to Your Tax Preparer.

ü  Did you pay interest on higher education loans?

ü  Were there any births, deaths, adoptions, divorces or marriages in your household?

ü  Did you convert a traditional IRA to a Roth, or re-characterize a Roth back to a traditional IRA?

ü  Did you receive tip income?

ü  Did you receive a notice from the IRS, state or local taxing agency regarding a prior year tax return?

ü  Did you receive installment payments on property sales?

ü  Did your children under 14 years of age receive investment income?

ü  Did you support anyone other an your own children?

ü  Did you make gifts to any individual other than your spouse of more than $12,000?

ü  Do you have a foreign bank account?

ü  Did you refinance your mortgage during the year?

ü  Did you pay points to purchase a home or refinance a mortgage during the year?

ü  Did you receive non-taxable sick pay?

ü  Did you have household employees?

ü  If you did not receive a W-2 from a former employer, do you have the final pay stub from that employer?

ü  Did you receive money from a lawsuit?

ü  Did you receive money from any other source not previously mentioned in this checklist?

As you can tell by the last question, this is not all inclusive. It is for this reason I regularly encourage taxpayers to have enough trust in their prepares to be able to tell them everything.

I mention in my post Choosing a tax preparer. . ., “If the tax professional you are talking to (or the tax practitioner you currently use) can’t do what you want honestly, don’t give him/her your business.”

In to all the above also make sure to have Notice CP 1378. This is the IRS notice that informed you of the Economic Stimulus Payment you may have gotten.

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      For more, check out Bankrate.coms peace by Kay Bell. Getting organized for the tax year.

 

 

TurboTax Giveaway

 

Tags: Deductions, irs, money, status, Taxes, taxpayers

          Since the New Year starts at the end of next week, you’ve got just a couple more days to take some steps to reduce your 2008 taxes. These tactics will lower your realized income so that you can reduce your overall tax bill come spring. Not all of these steps are going to work for all people, but in general, here are the 6 big end-of-the-year tax trimming ideas:

Give to Charity. If you have a favorite charity, giving money (backed by a receipt or canceled check) is considered a deductible item to reduce your taxable income. You can also deduct the fair market value of donated items you own, such as a used car or stuff around the house.

Maximize Your Retirement Account. If you can afford it, there’s no better way to reduce your tax bill than by contributing as much as you can into your retirement account. Yes I reaze the market is crazy, this is still a good idea for your taxes.

Sell Your Losers. If you own stocks and have ridden the highs and lows of the stock market, selling your losers and donating your winners can help offset some of Uncle Sam’s bite. If your once high-soaring stock decided to head south for the winter, consider selling it now to qualify for capital losses (you can always purchase it back, but not before 30 days). With this method, you can deduct up to $3,000 in losses from your gross income.

Donate Your Winners. With losers come some winners; that’s the hope at least. If you’re so fortunate, you can donate a portion of your appreciated assets to charity. You would avoid capital gains and be able to deduct the full amount of the donation. If you purchased stock worth $1,000 and it’s now priced at $1,500, you can avoid the capital gains of $500 (if you chose to sell it) and deduct the entire $1,500 from your income. By avoiding taxes and maximizing your tax deduction, it’s almost like the government is matching your donation - well, almost.

Leverage Your Home. If you’re a homeowner, you have several options to make additional deductions. If you have a property tax bill due in early 2009, consider paying it in 2008 to increase your deductions. You can also pay your January ‘09 mortgage, with the interest paid counting toward beefing up your deductions.

Get Organized. Knowing your options means knowing how much you’ve spent, donated, and earned. Mint.com or some sort of software like Quicken products (what I recommend most Quicken Online - Web-based Money Management) can help you organize your transactions and simplify your end of year tax planning. You can also view reports by category for the entire year.

Reducing your taxes is all about being smart with what you do with your money. Knowing where you stand is the first step in determining where you’re going.

 

Be sure to catch my entry at The Carnival of Personal Finance #184:  this is my first PF carnival. 

           Also please be sure to catch my guest post tomorrow over at Living Almost Large.

           Later this week I’ll also have a guest post over at $aving to Invest.

 

 

 This is the last “tax” post until after the holidays. I’ll have a Holiday post later this week.

Tags: Deductions, fair market value of donated items, new year, tax deduction, taxable income, Taxes

When opening your mail in January and February, you probably will receive a lot of documents with descriptions and/or warnings about this information being “Important Income Tax Information!” Soon you will have to decide how to deal with last year’s income tax situation.
            So, do you try to prepare and file your own income tax returns, or are you thinking about hiring a tax professional?

If you are thinking about hiring a tax professional ask yourself “why would or do I need a tax preparer”.  If you feel that you need a preparer there are four basic needs for tax preparation services:

1.      speed,

2.      accuracy,

3.      creating a customized tax strategy, and

4.      managing a complex tax situation with accuracy and professionalism.

Everyone wants their tax returns to be accurate. All tax professionals, even those at national franchises, should guarantee the accuracy of their work.

If you have a particularly complicated tax situation, you should seek a tax professional with substantial experience to help you. 

If having your taxes done quickly is most important, you’ll probably go to one of the nationwide tax franchises. Although I don’t recommend this, the employees at these companies are trained to get your taxes done quickly. Every year I hear from new clients and non-clients who are/were dissatisfied at the level of accuracy and professionalism encountered there.

Tax laws can be complicated and usually change from year to year, so it’s important to find a preparer who has the knowledge and experience to prepare your returns correctly. A lot of states do not require tax preparers to be licensed; however, many preparers are licensed, certified, and belong to professional organizations that require a certain level of education. Find one of those.

Also, services vary considerably from preparer to preparer, so you’ll also want to find one who offers the services you need.

Before you hire a preparer, call around to a couple of tax offices and take the time to ask these questions:

What kind of formal tax training do you have?

Do you hold any professional licenses or designations, such as certified public accountant (CPA)?

Do you belong to any professional organizations?

Do you take continuing professional education classes each year?

How long have you been preparing tax returns?

Have you ever done a tax return dealing with my situation?

Are you open for business year-round?

Have you ever been disciplined by any government authority for malpractice?

Are you authorized to and will you represent me in an audit or collection matter with the IRS or state  Department of Revenue if necessary?

How much do you charge, and how do you calculate your fees?

Ask what their price range is. Prices for tax preparation will vary depending on how complex your tax return is. Some professionals charge by the hour, or by how many tax forms you need to fill out, or even a flat fee for all work.

Ask about any guarantees the tax preparer offers. The tax preparer should be willing to guarantee the accuracy of the returns, be willing to amend the tax return if there was a mistake in the tax prep, and be willing and able to assist you in an IRS audit.  

Also, be careful of tax preparers who claim to know “the secrets” of obtaining unusually large refunds. Most preparers charge rates based on their time or the complexity of your return, and you should avoid anyone whose fees are based on a percentage of your refund. (This practice is illegal.) Incase questions arise after your return has been filed, find out if, and where, your tax preparer can be contacted in future weeks or months.

Never sign a blank tax form for any preparer.

Remember that you are ultimately responsible for your tax return, so be sure to choose your tax preparer carefully. If you want to find competent, licensed tax professional I suggest you visit The IRS web site Authorized IRS e-file Providers for Individuals then/or go to Search the NATP Member Directory, then call around and ask questions.

Friends and family can be of additional assistance.

What You’ll Need:

◊  All your current year tax documents

◊  Photo identification

◊  Social Security cards for yourself and your dependents

◊  Checkbook for direct deposit of your refund/direct debit for any amount due

◊  Copy of last year’s tax return

 

Tip: Little known fact is that local CPAs and EAs and other Tax professionals charge only slightly more than a franchise service and will provide much more personalized service.

Tip: Be sure to ask if your preparer is an enrolled agent (EA), CPA, or has received advanced tax training.

Tip: All tax professionals specialize. Find a CPA or EA who has the experience, knowledge, and skills you are looking for.

Tip: Some franchises will try to sell you an enhanced guarantee to cover additional taxes and penalties in case of an audit. This is practically a guaranteed profit for the franchise.

Some more Tips:

¤  A CPA is a professional accountant licensed by the state. Best for corporate accounting, tax audits, and business consulting.

¤  An Enrolled Agent is a tax professional licensed by the IRS. Best for complex tax issues, tax audits, and responding to tax collectors.

¤  A Tax Preparer may be registered by the state. Best for straightforward tax returns.

¤ The national Tax Franchises are H&R Block, Jackson Hewitt, and Liberty Tax. With offices nationwide. Often fast, courteous, and convenient. But some employees will be less trained than others. Be sure to ask for a senior-level tax preparer.

Expect to pay from $150 to $450, depending on how complicated your tax return is.

Tags: Audits, guarantees, income tax information, professional organizations, s, substantial experience, tax preparation services, Tax preparer, tax professionals, tax situation, tax strategy, Taxes

Being audited really isn’t the worst thing in the world if you are totally honest when filing your taxes. Should you be audited and it is found that you have made an honest mistake, don’t panic. You might be penalized with affordable fines or merely told to correct the mistake. The IRS rarely burns those who practice honesty and caution when filing their taxes. By following the below advice, however, you may never have to find out for yourself.

 

1-Hire a Trusted professional

Some of us prefer to do our taxes without help and that is fine when things are uncomplicated. Services like TurboTax allow many of us to file taxes in under an hour without a problem. However, those who are self-employed often have a lot of paperwork to deal with. Hiring an accountant, bookkeeper or tax preparer can help you to prevent any mistakes.

 

2-File Every Year, No Matter What

Can’t pay your taxes in full this year? That is okay! The IRS will work with you through an extension plan. One of the biggest mistakes made by the self-employed when April rolls around is not filing because they can’t pay what they owe. Always file, no matter what. Contact the IRS about your money situation and they will let you pay out the taxes. This results in some penalties, but that is far better than the alternative.

 

3-Report Your Full Income

One of the reasons why the IRS watches entrepreneurs so closely is because it is easier for them to underreport their income. If you are a freelancer who occasionally takes small gigs with no paper trail, don’t think you can neglect this income when filing your taxes. Finding inconsistencies is what the IRS does best and they will eventually catch up to you.

 

4-Don’t Get Too Creative With Deductions

There are usually two types of income tax filers who are self-employed:

1) those who are too scared to make deductions because they don’t want to be audited
2) and those who deduct everything under the sun with reckless abandon.

Don’t be either person! You should be able to make deductions, as they are there for your benefit. However, you need to make sure you legitimately qualify for each one.

 

5-Document Everything

One of the best ways to prevent mistakes is by having all necessary paperwork handy when you file. This is also your best defense against penalties should the IRS ever come knocking on your door. You see, a lot of deductions really can be a red flag to the IRS. If you can back up each one, however, you are perfectly within your right to claim those tax breaks. Back up everything and keep those documents in a safe, organized place.

 If this wasn’t any help then look for my post Wednesday July 9th, “Audit Insurance”

 

 

 

 

 

 

Tags: Audits, benefit, caution, honesty, irs, mistake, Tax preparer, Taxes