(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

Are you creating a budget? If so here is a bit of assistance for some of you.

Percentage guidelines and categories allocate your income to the categories based on some recommended percentages. The categories and percentages are:

 

            When you figure your pie, make sure your total adds up to no more than 100%. As I have said, a lot of households do this (spend more than they have coming in) so make sure you watch.

            As you can see the guidelines are not going to work for everyone. What I spend on my mortgage exceeds the suggested % of my income that should be spent on housing. My recreation is a cross between my job and DVDs. My work has its own pie and DVDs are grouped in with my personal spending.

            When making a budget, work with what works for you. Put things where they fit in your life. The above is suggested by what I call popular money managers. My input to their chart or list fell in line. My personal knowledge I break it down a lot more than they have in that I track insurance that is broken between medical auto and home. So use the guide but make you own pie that works with your situation.

Free Quicken Online automatically categorizes your expenses.

Tags: budget work, creating a budget, money, money managers

Another “stimulus”? did the last one even make a dent? Help in the slightest bit? If it did I missed it. Honestly, I can’t help but shake my head. I just don’t get the logic.

Before I get to the specific steps you should take, let’s talk for a moment about the big picture.

 The President and Congress encouraged millions of Americans to SPEND, and yet many of these very same Americans were/are already over their heads in debt with an average credit card balance of more than $9000!

Good thinking.

Let’s continue one of the very reasons that our country is in such poor economic shape. In fact, don’t wait. Spend it now and pay it back later — with interest, of course! The current government thought that spending the rebate dough was a vote of confidence for our economy’s future. Wake up, Congress! Smell the damn coffee and join the rest of us in the real world.  

I believe it’s irresponsible for our government to encourage us all to spend, spend and spend more without even a mention of paying down debt or, actually saving some money for the tough times I think are still ahead. While I question just how effective this whole band-aid approach will be, if the government wants to put a little extra money in our pockets, we’ll take it, right?

But…I want you to be smart about what you do with it.

If you’re in great shape financially and don’t have any debt to pay down, college educations to fund, cars to buy, etc., by all means – spend it! Enjoy yourself. That’s just not the reality for most of us. We can use this money to do some serious good.

So what exactly should you do with extra money? Here are suggestions for the smartest ways to put it to good and meaningful use:

Pay down your credit card balance as much as possible. Think about this. If you’re part of a couple with $10,000 in credit card debt and you apply your $1,200 right to that balance, you’re paying off more than 10% in one fell swoop. That’s huge! And it will save you a ton of money in interest over time. You’ll be in much better shape financially than if you spend that money.

Get ahead on your mortgage payment. This is especially true if you have one of those adjustable-rate mortgages that caused the whole sub-prime crisis. If you are in danger of not being able to make your payments, don’t even consider any other option for this rebate.

Start a family emergency fund. I recommend that you have at least six months’ worth of expenses set aside. This is more important than ever now when the economy is struggling, people are losing jobs, and so on. The situation is only going to get worse in my opinion.

Add a few dollars to your IRA. You get a double bang for the buck. You get a tax break and you’re saving for your retirement. When you’re retired and sitting at your beach house sipping a glass of fine wine, you’ll look back and be glad you made decisions along the way to save for your retirement and not rush out to buy that big-screen HDTV.

Invest in your career. If you are at all concerned about your job in the current economy, spend some of this money on training or courses to help you keep your job or make you more marketable if you need to find one.

Start or add to a 529 savings plan to help pay for your children’s (or grandchildren’s) college education. There’s no better investment in our future! Saving for college can be confusing, so be sure to check out all additional information.

Tags: economic shape, economy, extra money, logic, money, Opinions, stimulus, Taxes

     Most people avoid creating a budget and fewer still stick to one. in these times you need one, but it doesn’t have to be painful.

     If you’re the type of person who always has plenty of cash, knows exactly where every penny goes, and never has trouble paying bills, you need read no further. You’re either too rich or too smart to need this information.

     For the rest of us,

     Unfortunately, making - and sticking to - a budget is the essential tool for ensuring that our money gets used the way we need it to. Even if you’re in the happy situation of having plenty of income, the homework involved in drawing up a budget can be instructive, since you may find that you are spending more than you wish on items like DVD’s, electronic gadgetry, or restaurant meals.

     Drawing up a budget is usually pure labor enlivened only by the reality of staring foolish spending habits in the face. Why do you have a luxury sound system if neither you nor your spouse listen to it? In fact, one of the chief impediments to budgeting is that most people would rather not know how they really use their money.

     It’s bad enough to learn this kind of information on your own. It’s even worse when a spouse or significant other finds out, since it usually confirms his or her worst fears - and provides new ammunition for future arguments “discussions.”

     Take heart. Any spending mistakes you’re making are probably common and not impossible to cure. Moreover, the bulk of budgeting’s pains are at the beginning.

     After you have a budget in place - and you’ve fine-tuned it with a couple of months of actual spending - tracking, your expenditures becomes almost automatic.

Listing expenses

To build a realistic budget, start by figuring out where your money goes now. There are three steps to creating a budget:

1.  Identify how your money is currently being spent.
2. Evaluate that spending to see if it meets your financial priorities.
3. Track your ongoing spending to make sure it stays within those guidelines (or to understand how your budget needs to be revised).

     If you happen to use Quicken (recomended), Microsoft Money, Mint.com or other such software, you’re in luck. These programs generally make it easy to draw up a budget.

     In Quicken, for example, every time you make a deposit, write a check, pay a credit card bill, or dispatch an electronic payment you are asked to assign it to a particular category, such as “salary,” “clothing,” “groceries,” “child care,” or “health insurance.”

     You can also create subcategories, dividing “auto” expenses into “fuel,” “insurance,” and “service.” The program comes with a set of categories that handle most of the basics. You can edit the list to create categories that make better sense for your particular household. And if you’re away from home, you can track expenses at the Quicken Web site and then download the transactions later.

     The drawback, of course, is that entering and categorizing all of your income and outflow is a tedious chore.

     You can reduce the tedium by judiciously selecting categories. Let’s say you are only worried about tracking your spending for recreation and leisure pursuits. You could create categories that cover those types of expenses, and let everything else accumulate under “miscellaneous revenue” or “miscellaneous expense.”

     The problem with that approach is that you forgo the opportunity to spot problems in other spending areas that you may not even be aware of.

     A better solution is to track expenses using electronic banking. That way, you can download your payments and deposits directly from the bank, rather than having to enter them by hand.

     The downloaded banking transactions generally show up without any categorization - meaning you’ll have to add the categories by hand. But if you use a credit card that is issued by a bank that permits electronic access, then the downloaded charges from your card sometimes do come with categories attached (they aren’t always right, so check them).

     Either way, once you’ve got your spending tracked by category, drawing up a report requires only a few clicks of the mouse. Even better, such programs often have an automatic budget-creation feature that scans your spending in the past in order to estimate how much you’ll spend going forward.

     If your finances aren’t wired, you can still get a good handle on your spending the old-fashioned way. Start by getting all your records together from the past 12 months, including pay stubs, loan proceeds, withdrawal slips, canceled checks, and itemized credit-card statements. Then go through them and compile totals for your income and expenses in a set of categories that makes sense for you.

     At the end of this, you may still have a sizable lump of spending that’s undocumented - typically, the money you withdraw in cash and then spend on day-to-day “needs“. If this portion of your budget seems to be getting out of hand, keep a journal for the next four weeks in which you record every nickel you spend. You can use those results to calculate how your cash is being spent throughout the year.

     Now that you’ve got a good picture of where your money is going, you can proceed to evaluate which parts of that spending should be raised or lowered. You might start with a Budget calculator, which compares your spending with recommended levels. Found in most software as above or found on the web. I like looking for free such stuff at ww.tucows.com.

 

     If your boss at work were to ask you for an analysis of the department’s spending, you’d figure it out quickly enough. Budgeting your household should be approached in the same businesslike fashion. A variety of electronic tools can make the process easier.

Setting goals

     Analyze your spending habits to see where you need to make changes. Once you have a budget, it’s time to go through your spending and figure out where you need to cut back.

     This is especially urgent, obviously, if you spend more than you make - a scary position, for sure, but not uncommon. In fact, Labor Department numbers show that many families making $50,000 or less are spending at least a few percentage points more money each year than they actually bring in.

    That doesn’t mean that they, or you, are headed for bankruptcy. But it does show that Americans are in the habit of borrowing to cover both short-term expenses, like those on credit cards, and long-term ones, such as buying cars and homes.

     Let’s just say that if your spending exceeds your income, then your top priority in constructing a budget should be to slash your spending, now.

     If your household runs in the black, you may still want to reallocate some of your spending. The calculator helps identify trouble spots by highlighting categories where your annual expenses are sharply higher or lower than average for households with similar demographics.

     In some cases, a divergence will be perfectly reasonable. The average family spends only a few percent of its income on education, for example. But if you have a child in college or private school, or are taking some courses yourself, your education spending will be a lot higher — and more power to you. I am big on continuing education.

     On the other hand, if the calculator shows that you’re spending twice as much as the average family on meals away from home, and there’s no obvious reason why that should be so, you may want to consider eating in more often.

     When projecting your income, don’t include money that you can’t be sure to receive, such as highly variable year-end bonuses, tax refunds, or gains on investments. Instead, wait until the extra cash arrives, then save or invest it to produce more revenue for the future. Your goal should be to reduce your spending to about 90 percent of your income, with the aim of plowing the rest of that money into the financial objectives you deem most important.

      Once you’ve set your budget goals, you need to develop the habit of tracking your expenses on an ongoing basis - something that’s most easily accomplished using personal-finance software. The aim here is to make sure the spending stays within the limits you’ve set. However there’s a second aim:

     Very likely you will discover that some of the goals you set were unrealistic. If so, ease them, slightly. No point in giving yourself an unreachable hurdle, but neither should it be too easy.

     Often it takes two or three revisions before you achieve a budget that you can really stick to. If juggling the numbers leaves you wishing you could free up some extra cash, push on for suggestions. 

Cutting costs How to reduce spending to free up money for use elsewhere:

     The most common spending problems are caused by a house that’s too large, a car that’s too luxurious, or a credit-card lifestyle that’s too lavish for your income. Those who see a virtue in moderation may have had budgeting in mind.

Whatever your situation, here are some common ways that people can reduce monthly bills.

Eliminate trivial / needless costs

     Look first for small savings - not because they’ll end your budget problems, but simply because they’re easy to find and take advantage of. For example, swear off that mid-afternoon doughnut or expensive premium latte. Shop for clothes and household furnishings only during sales. Higher gasoline prices make it a good idea to “bundle” one’s various shopping trips. Keep your house warmer in summer and cooler in winter. Take on chores that you usually pay someone else to perform, such as mowing the lawn or shoveling snow.

Seemingly insignificant savings do, in fact, add up.

Reduce larger expenses

     These recommendations are decidedly more painful. If you smoke, for instance, take steps to quit. Don’t buy season tickets to anything. Trade in your luxury car or sport utility vehicle for something a lot cheaper to buy, fuel, and maintain (I did say this was painful).

    On the assumption that those kinds of changes may be too wrenching, here are some other specific areas where many people can find savings:

Refinance your mortgage

     If new mortgages are costing at least two percentage points less than the rate you’re paying, refinancing may save you significant dollars.

Cut your taxes

     Usually this means taking better advantage of itemized deductions, and it’s a lot easier to do if you are either self-employed or have some income from work you do outside of a regular job. That opens up a range of new deductions — from expenses for work-related items to a home office — that are much harder to claim if you’re an ordinary working stiff.