It is hard to believe that another tax season is rapidly approaching. With the holidays around the corner, no sooner will you be finishing your Thanksgiving turkey than you will be sitting in your accountant’s office or loading tax software onto your PC to assist with filing your return. The following are several ideas to help simplify the tax preparation process.
Get Organized
The first step in preparing your taxes is gathering the data and forms you’ll need to complete the return. A good place to start is to look at your tax returns for the last three years and make a list of items that were reported. For example you should expect to receive a W2 form from each of the employer(s) you worked for in 2008. Create a folder marked Taxes 2008 and place the forms in it as you receive them. Use this folder to collect any other information or data that you’ll need for filing. Examples include information about mortgage interest, real estate taxes, interest earned and dividends, stock information, IRA contributions, charitable donations, k1 schedules, college tuition, alimony, unemployment, 1099s, social security received, medical expenses paid, etc. The point is to start getting organized early so that when the time comes to file your taxes, you have all the information you’ll need in one place.
Related, is the need for appropriate documentation. Proper documentation is needed for anything that is placed on your tax return, and you should be aware of documentation requirements. For example, charitable donations over $250 you must have a receipt in order to report the deduction. Another example is in reporting any investment activity. Any sale through the stock exchange needs to be reported on your tax return. If you lost money in the sale you can deduct up to $3,000 per year with additional losses carried forward to the following years. When reporting any stock activity, make sure you have a break down of what was paid for the stock originally and what the stock was sold for.       For example if you purchased xyz stock on May 1st of 2008 for $100 and sold the stock on June 1st of 2008 for $50, you have a loss of $50 which is deductable.
For taxpayers who are self-employed, start preparing your profit and loss statements now. The sooner the profit and loss statements are done, the sooner your tax preparer can begin working on the return, which could enable you to file an earlier tax return. In the event that money is owed, this gives you more time to make arrangements for generating the funds needed to pay the debt.
Get Knowledgeable
For taxpayers who have an accountant prepare your return, be sure to create a list of any questions you have for your accountant. If you do not consult an accountant, you can still get your questions answered. Some accounting firms will answer questions over the phone, and there is always the possibility of emailing your questions to a general mailbox. A good example of this would be to inquire about the first time homebuyer credit and what qualifications are needed to receive this benefit.
Be careful of firms that charge excessive fees for certain tax preparation services rendered. Do not be fooled by refund incentives in which the taxpayer walks away with a check in hand at the time of filing. This is called a rapid refund. A fee for the rapid refund service, which can be quite high, can be deducted from your tax return. However, if you choose to file electronically and wait 7-14 days for the refund, you will receive your entire refund. All that is needed to file electronically is the routing number of your bank and your account number for direct deposit. Another option is to have a check mailed to your address which can take 4 to 6 weeks.  Â
Choosing a professional to prepare your taxes should not be taken lightly or done at the last minute. It’s important to feel comfortable with your tax professional and to trust them.  A trusted accountant should be one of the many reliable sources you have available at all times—especially during the current economic situation. Their advice and council can help you make decisions and unravel the complexity of many financial transactions. If you currently do not have an accountant I strongly encourage you to begin interviewing potential candidates. Even if you prepare and file your own taxes, it’s still a good idea to have a third-party you can consult, to ask questions and keep you up-to-date on the latest laws and requirements.
This article highlights a couple tips and ideas to help you through the upcoming tax filing. They are designed to put you on the right track to getting the most from your return. To get more detailed information about filing your tax return, go to www.irs.gov or to email the author with your questions or comments, contact Harry Flanagan at Harry@apatax.com.
Get Organized
The first step in preparing your taxes is gathering the data and forms you’ll need to complete the return. A good place to start is to look at your tax returns for the last three years and make a list of items that were reported. For example you should expect to receive a W2 form from each of the employer(s) you worked for in 2008. Create a folder marked Taxes 2008 and place the forms in it as you receive them. Use this folder to collect any other information or data that you’ll need for filing. Examples include information about mortgage interest, real estate taxes, interest earned and dividends, stock information, IRA contributions, charitable donations, k1 schedules, college tuition, alimony, unemployment, 1099s, social security received, medical expenses paid, etc. The point is to start getting organized early so that when the time comes to file your taxes, you have all the information you’ll need in one place.
Related, is the need for appropriate documentation. Proper documentation is needed for anything that is placed on your tax return, and you should be aware of documentation requirements. For example, charitable donations over $250 you must have a receipt in order to report the deduction. Another example is in reporting any investment activity. Any sale through the stock exchange needs to be reported on your tax return. If you lost money in the sale you can deduct up to $3,000 per year with additional losses carried forward to the following years. When reporting any stock activity, make sure you have a break down of what was paid for the stock originally and what the stock was sold for.       For example if you purchased xyz stock on May 1st of 2008 for $100 and sold the stock on June 1st of 2008 for $50, you have a loss of $50 which is deductable.
For taxpayers who are self-employed, start preparing your profit and loss statements now. The sooner the profit and loss statements are done, the sooner your tax preparer can begin working on the return, which could enable you to file an earlier tax return. In the event that money is owed, this gives you more time to make arrangements for generating the funds needed to pay the debt.
Get Knowledgeable
For taxpayers who have an accountant prepare your return, be sure to create a list of any questions you have for your accountant. If you do not consult an accountant, you can still get your questions answered. Some accounting firms will answer questions over the phone, and there is always the possibility of emailing your questions to a general mailbox. A good example of this would be to inquire about the first time homebuyer credit and what qualifications are needed to receive this benefit.
Be careful of firms that charge excessive fees for certain tax preparation services rendered. Do not be fooled by refund incentives in which the taxpayer walks away with a check in hand at the time of filing. This is called a rapid refund. A fee for the rapid refund service, which can be quite high, can be deducted from your tax return. However, if you choose to file electronically and wait 7-14 days for the refund, you will receive your entire refund. All that is needed to file electronically is the routing number of your bank and your account number for direct deposit. Another option is to have a check mailed to your address which can take 4 to 6 weeks.  Â
Choosing a professional to prepare your taxes should not be taken lightly or done at the last minute. It’s important to feel comfortable with your tax professional and to trust them.  A trusted accountant should be one of the many reliable sources you have available at all times—especially during the current economic situation. Their advice and council can help you make decisions and unravel the complexity of many financial transactions. If you currently do not have an accountant I strongly encourage you to begin interviewing potential candidates. Even if you prepare and file your own taxes, it’s still a good idea to have a third-party you can consult, to ask questions and keep you up-to-date on the latest laws and requirements.
This article highlights a couple tips and ideas to help you through the upcoming tax filing. They are designed to put you on the right track to getting the most from your return. To get more detailed information about filing your tax return, go to www.irs.gov or to email the author with your questions or comments, contact Harry Flanagan at Harry@apatax.com.