Haven’t Received Your W-2 Yet…Here’s What To Do!
First, contact your employer and request your W-2. It’s the law.
If they don’t release it – and you don’t have it by the middle of this month, you can report them to the IRS. There will be a penalty. Unfortunately, not a high enough penalty to suit the folks who didn’t get their W-2s.
Let me give you some help in understanding the instructions.
The IRS does tell you that if you never do get it, use a Form 4852 to create a substitute W-2. But IRS doesn’t explain how to generate the numbers for the Form 4852.
You’ll need your last paystub to help you compute how much your withholding was until the last day you worked.
If the last paystub doesn’t have your year-to-date amounts on it, find all the paystubs and total up the income; and total up each category of withholding – total federal income tax withheld, state income tax, FICA, Medicare and any other state withholding.
Also, don’t forget to add up anything deductible, like union dues, health insurance, etc.
If you don’t have the previous paystubs, estimated the totals by dividing the amounts on your last paystub by the number of working days it covers. Then multiply each result by the total number of days you worked for that company last year.
Sometimes, you don’t have any paystubs at all. Go see a good local tax professional to help you re-create your compensation and withholding.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – How to File Your Tax Return
Paperwork you’ll receive
All of the required tax forms from employers, brokers, mortgage companies and others must arrive by January 31. Find a place for your tax records as you receive the relevant documents listed below. Also, as these arrive, review them for accuracy.
Common forms most people receive include:
- W-2 from employers reporting income and taxes withheld throughout the year.
- 1099-MISC if you’ve done any freelance work.
- 1099-DIV from mutual fund companies and brokerage firms reporting dividends paid and distributions made.
- 1099-INT from banks reporting interest income.
- 1098 from your mortgage company reporting the interest you’ve paid for the year.
See Your Tax Form Checklist for information about additional forms you may need to receive.
If you’re still missing any of these forms, first call the employer, investment company or bank. If that doesn’t seem to help, call the IRS at 800-829-1040.
Records to Dig Up
Next, start to assemble your own records.
Even if you owe taxes, it’s a good idea to start organizing early. You certainly don’t want to forget a vital deduction because you rushed through your documents at the last minute.
If you’re self-employed, gather receipts for:
- Your business phone calls
- Mailing and copying expenses
- Equipment purchases
- Transportation to business meetings
- Professional licensing fees
- Other expenses you can write off
For more information, see IRS Publication 535, Business Expenses.
If you have an office in your home, find the receipts for the utilities and records of your mortgage or rent payments. You may be able to deduct a portion of these costs if you qualify. See IRS Publication 587, Business Use of Your Home for more information about the rules.
If you’ve had a lot of unreimbursed medical expenses, it’s also worthwhile to tally your receipts (transportation costs to medical treatments count, too) and see if you qualify to deduct any of those costs this year. These expenses are only deductible to the extent they exceed 7.5% of your adjusted gross income.
See more on Deductible Medical Expenses in our Medical Taxopedia. Also, for detailed information, see IRS Publication 502 Medical and Dental Expenses.
Also, track down canceled checks and receipts for all charitable contributions. If you’ve given more than $250, you’ll need a receipt as well. If you’ve given property worth more than $5,000, you will need documentation from professional appraisal.
You can no longer deduct the fair market value of a car when you donate it to charity. In most cases, you can only deduct the amount of money the charity receives when it sells the vehicle.
See our taxopedia for Charitable Deductions.
If you’ve sold stocks or mutual fund shares, you’ll need to dig up your records showing how much you originally paid for the shares and any dividends that you’ve reinvested — otherwise, you end up paying more in taxes than you owe. It can be in incredibly complicated to figure out your tax basis if the company has gone through any mergers or spin-offs. In that case, you might be able to get help from your brokerage firm or from the company’s investment relations department. For more information, see Finding a Stock’s Cost Basis.
Resources for do-it-yourselfers
Taxpayers have more free resources than ever before. If you have a computer and an Internet connection, you not only have access to the complete library of IRS Forms and Publications, but also advice from experts, discussion boards, and, best of all, a bevy of free online software and e-filing choices. Here’s a quick list of what you can find, right here on Kiplinger.com:
- Common tax forms for individuals and businesses.
- Kiplinger’s Taxopedias, your quick guide to what’s deductible and what’s not.
- Kiplinger.com Community’s Tax Forum, where you can share questions and answers with other readers.
- Information on state taxes with links to state tax agencies.
- Kiplinger’s Tax Glossary.
And when you’re ready to put all your newfound knowledge to use, you can prepare and file your taxes electronically using .
E-filing versus tax software. If you earned $54,000 or less in 2007, you can qualify for Free File, an online tax preparation and filing service launched by the IRS in partnership with some of the biggest names in tax software — including H&R Block, the makers of TaxCut, and Intuit’s TurboTax.
Although bare bones, the online versions are basically the same as the software that comes in a box, with a couple of major exceptions: First, no price tag. Second, there is no added fee for electronic filing.
Online preparation may not be for everyone, though. If you have a dial-up connection, doing your taxes on the Web could become a time consuming ordeal and you may be better purchasing tax software, which is also deductible. Most software packages include advice and features you won’t find online.
For example, TurboTax Deluxe ($29.95), looks for deduction opportunities as you go and shows you how to qualify for about any deduction.
Either way you decide to go — online or software — digital tax preparation and e-filing could save you both money and time. The IRS says electronic filing reduces errors and cuts the delivery time of refunds in half.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Deductions & Credits
The goal of every taxpayer whether individual, self-employed, small business or corporations is to lower your tax liability. In a word, “deductions lower your taxable income, and credits lower your taxes”. Below is a list of links that will provide you with a brief description of those deductions and credits and ultimately…..”lower your tax liability”.
Tax Deduction for Charity Donations
Home Mortgage Interest Tax DeductionEnergy Tax CreditsOther Tax Credits – Form 1040
Adoption Tax Credit: How to Claim the Adoption Credit Child Tax Credit: How to Claim the Child Tax Credit on Form 1040
Retirement Savings Contribution Credit
Education Credits – Hope and Lifetime Learning Tax Credits
Credit for the Elderly or Disabled – Form 1040 Line 48 Child Care Tax Credit & Dependent Care Expenses – Form 1040 Line 48
Adjustments to Income – Preparing Your 1040 Step 5
Adoption Credit – Form 1040 Line 52
Alimony Paid Tax Deduction Casualty & Theft Losses
Child Care Tax Credit & Dependent Care Expenses – Form 1040 Line 47
Child Tax Credit – Form 1040 Line 51
Classroom Expenses Deduction Credit for the Elderly or Disabled – Form 1040 Line 48
Domestic Production Activities Deduction – Section 199
Early Withdrawal Penalty Deduction
Earned Income Credit: Qualfying for the Earned Income Tax Credit Education Credits, Hope Credit, Lifetime Learning Credit, Form 1040 Line 49
Educator Expenses: Claiming a Tax Deduction for Educator Expenses
Foreign Tax Credit – Form 1040 Line 46
Qualified Performing Artists (QPA) Deduction Moving Expenses
Self-Employment Health Insurance Deduction
SEP-IRA Deduction Early Withdrawal Penalty Deduction Alimony Paid Deduction
Health Savings Account Deduction
Health Savings Account Deduction: Tax Deduction for Health Savings Accounts How To Pay Zero Taxes 2005 (Book Review)
Hybrid Car Tax Credit – Essential Information about the Alternative Motor Vehicle Credit
Hybrid Car Tax Deduction – Clean Burning Fuel Deduction
IRA Deduction (Traditional Individual Retirement Account) Itemized Deductions
Limitations on Itemized Deductions
Moving Expenses Tax Deduction Other Tax Credits – Form 1040 Line 53
Personal Exemptions
Qualified Performing Artists Expenses
Retirement Savings Credit, Form 1040 Line 50 & Form 8880
Self Employment Tax Deduction Self-Employment Health Insurance Deduction
SEP, SIMPLE, Retirement Plan Deduction
Student Loan Interest Deduction Student Loan Interest Tax Deduction
Traditional IRA Tax Deduction – Individual Retirement Account Deduction
Tuition and Fees Deduction for College Expenses
Tuition and Fees Tax Deduction
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – The Right Form for You
Form 1040EZ (the shortest tax form)
You can use Form 1040EZ, the shortest and easiest federal tax form, if:
· Your total income is under $100,000
· Your interest income is under $1,500
· You have income only from wages, interest, unemployment compensation, and Alaska Permanent Fund dividends
· You and your spouse are under 65 years old
· Your filing status is single or married filing jointly.
· You do not have any adjustments to income
· You are claiming only the standard deduction
· You may claim the Earned Income Credit
· You may claim the Telephone Excise Tax Refund
· You are not claiming any other tax credits
More Form 1040EZ resources:
· Download Form 1040EZ (PDF)
· Find IRS Instructions for Form 1040EZ
Form 1040A (the short form)
Most taxpayers qualify to use Form 1040A, often called the “short form.” This form allows you to claim the most common adjustments to income.
· Your total income is under $100,000
· Any age, any filing status
· You have income from wages, interest, dividends, capital gain distributions, IRA or pension distributions, unemployment compensation, or Social Security benefits
· You can claim the following adjustments to income: penalty for early withdrawal of savings, IRA contributions, student loan interest, and jury duty pay given to your employer
· You can claim the following tax credits: Child and dependent care credit, Credit for the elderly and disabled, Education credits, Retirement savings contributions credit, Child tax credit, Earned income credit, Telephone excise tax credit.
You cannot use Form 1040A if you want to itemize your deductions.
Most taxpayers qualify to use Form 1040A, so you might want to begin with this tax form. But just to be sure, look over all the types of income and deductions found on the longer Form 1040.
More Form 1040A resources:
· Download Form 1040A (PDF)
· Find IRS Instructions for Form 1040A
Form 1040 (the long form)
Any taxpayer can use Form 1040. Even though it takes longer to fill out, Form 1040 can handle any tax situation no matter how complex. You must use Form 1040 if:
· You have income of $100,000 or more
· You are itemizing your deductions (such as mortgage interest or charity)
· You have income from a rental, business, farm, S-corporation, partnership, or trust
· You have foreign wages, paid foreign taxes, or are claiming tax treaty benefits
· You sold stocks, bonds, mutual funds, or property
· You are claiming adjustments to income for educator expenses, tuition and fees, moving expenses, or health savings accounts.If you have any doubt whatsoever, please use Form 1040. You can never go wrong by using this tax form.
More Form 1040 resources:
· Download Form 1040 (PDF)
· Find IRS Instructions for Form 1040
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – That 1040 Won’t Bite You!
Admit it. You’re afraid of your 1040. That’s OK. A lot of us are. And our tax fears, sometimes irrational, sometimes warranted, cause us to do a lot of dumb things when it comes to our annual returns.
Some people put off filing, some don’t file at all. But fear doesn’t have to paralyze you. Here are seven common tax terrors, how real they are (or aren’t) and how you can overcome them.
1. Afraid I can’t do my taxes myself
This fear, unfortunately, is too often true. And it gets truer every year as federal lawmakers add provisions and pages year after year. The tax law publisher CCH Inc. notes that the 1913 tax code took up 400 pages in its “Standard Federal Tax Reporter.” By 2007, CCH filled more than 67,000 pages of that document with tax law intricacies.
The law is very complicated and filling out the returns is somewhat mind-boggling. The media keeps telling everyone how difficult it is and people just get panicky. They sit down and start (the filing process) with all this in the back of their minds. I can understand why people would be afraid to do it.
Such fear is nothing to be embarrassed about. If you ask congressmen who actually wrote the laws, many don’t do their own returns. They’re writing policy, not looking at it from an accounting point of view.
The way our tax system works also adds to this fear.
Many people aren’t good with numbers, then once a year they wind up trying to deal with numbers. Any other time you spend money, before you walk out you have someone there telling you what you owe. But when you’re doing your taxes, you’re doing it yourself. You’re telling the government what you owe them.
The remedy: Don’t be afraid to ask for help. You have lots of preparer options, from a personal accountant who can fill out your return and help you plan throughout the year to franchise operations that gear up between Jan. 1 and mid-April. If your tax situation is not overly complicated, computer software might be enough to help you file with a bit more confidence. Take a look at your tax needs, then find the tax assistance that best meets them.
2. Afraid I’ll overlook a tax break
Even folks who are brave enough to tackle their taxes on their own often face this fear. Again, it’s not an unreasonable one. And once again, those folks in Washington, D.C., feed this fear.
Take, for example, three popular tax breaks that expired, only to be brought back to life at the end of 2006. This caused a lot of nightmares not just for us filers, but also for the Internal Revenue Service. The tax agency had already printed 2006 tax forms without the state sales tax, educators’ expenses, or tuition and fees deductions. It’s hard enough to claim tax breaks when they’re right in front of you; now with these three, you have to go searching for how to claim them.
The remedy: Accept that tax filing is going to take some homework. Before you start your return, check out the countless publications — so you’ll know exactly where this year’s taxes might trip you up. Again, you also can turn to software or a tax pro for help in claiming all your possible tax breaks.
3. Afraid I’ll make a mistake that will cost me money
This is a close relative of fear No. 2. But here, the fear is not of omission, but commission. This includes things as simple as filing the wrong tax form. It happens. In trying to get through filing as quickly as possible, some folks opt for the easy, in this case, the 1040EZ, way out and end up cheating themselves. Or they choose the incorrect filing status, such as single when they’re eligible to file as the more tax-advantageous head of household. Those are just a couple of the many mistakes that filers make ever year.
The remedy: Slow down. Even if you’ve waited this long to do your taxes, you still have time to do it right. Read the instructions. If you’re using software, don’t skip steps just to finish. Answer all your tax pro’s questions. If he or she says to provide more information, then provide it. A little extra work and attention to detail could cut your tax bill or get you a bigger refund.
4. Afraid that my tax adviser is incompetent or a crook
You know you need help, but you’re afraid that the person you turn to could be more of a hindrance. Unfortunately, sometimes this fear is well-founded.Last year, the Government Accountability Office issued a report with the disturbing finding that in a limited study of commercial tax prep chains in major metropolitan areas, all the returns completed in those offices were wrong to some degree.On April 3, the IRS alleged that some Jackson Hewitt franchises filed bogus returns for clients, cheating the federal government out of $70 million. The agency obtained court orders to shut down 125 branch offices in Detroit, Atlanta, Chicago and Raleigh, N.C.Even big name, high-dollar help sometimes produces unexpected tax costs. Remember KPMG? A few years ago that global accounting and consulting firm acknowledged that some of its tax shelters didn’t meet IRS standards and agreed to pay the government millions to settle the inquiry.By the way, the taxpayers who participated in those companies’ questionable shelters ended up owing additional taxes and penalties.
The remedy: Everybody makes mistakes, even tax professionals. The key is to make sure you don’t end up paying for your tax preparer’s mistakes. Start with the hiring process. Investigate several potential preparers and thoroughly check out each before you hand over your personal tax documents. Once you’re a client, don’t take every recommendation at face value. Ask questions and make sure you understand the answers. Most of all, remember the adage “if it sounds too good to be true, it probably is.” There are some tell-tale signs that a tax shelter is in fact a tax scheme that could cost you dearly.
5. Afraid I’ll get audited
If fear No. 4 comes true, then this is definitely one to be scared of. Audit fears, however, tend to be much greater than actual audit realities. True, there are some red flags that might catch an IRS examiner’s eye. But overall, the risk of audit is small — about 1 percent of individual returns were audited in 2006. So don’t let fear of IRS questions keep you from filing. And definitely don’t let it stop you from claiming legitimate tax breaks.“If you’re really doing stupid things on your tax return, expect to get audited. Deservedly so,” says Enrolled Agent Eva Rosenberg, who is based in Southern California and the Internet’s Tax Mama. “But if you’re afraid to use a legitimate tax break because you’re afraid you’re going to be audited, stop it! Stand up for your rights. There’s no reason to be afraid.”
The remedy: Make sure you can show an IRS examiner why you filed as you did. This means keeping good records, especially if you’re self-employed. People who work for themselves and file Schedule C with their returns tend to get scrutinized a bit more, so your business record keeping needs to be more precise.
6. Afraid to e-file because my personal info could be lost or stolen
Slightly more than half of us send in our returns electronically. But that leaves another 60 million, give or take a million, folks who still file the old-fashioned paper way. This fear is one of the contributors to that mind-set.Yes, identity theft is a major issue. In fact, as this tax-filing season entered its last few weeks, the IRS issued a new warning about e-mail phishing scams that falsely claim to be from the tax agency. And yes, hackers still manage to break into online financial data systems periodically. The biggest problem the IRS has had in recent years, though, has been with such information left on laptop computers that were lost or stolen, not with someone compromising the government’s online tax database. But that doesn’t mean you should ignore Internet safety precautions.
The remedy: Any tax data transference requires two parties. Make sure the starting point of such a relay, your computer, is secure. This means installing a firewall and virus protection, either as software or a hardware barrier, and then updating it regularly. Of course, taxpayers still must trust the IRS to safely store our data, but at least e-filers can know they did their part in the security process.You don’t need any fancy software to back up your data. You can just copy the files the same way you copy other material, send it from ‘my docs’ to a CD or USB drive. There’s no reason that a computer or data loss should cause filing problems. The IRS doesn’t really accept that as an excuse for a late or no return.
7. Afraid to file because I can’t pay
The only thing scarier than filing taxes is what could happen if you don’t file. The IRS penalty for not filing is actually worse than if you file but don’t pay your tax bill in full.If you owe tax and don’t file on time, the late-filing penalty is usually 4.5 percent of the tax owed for each month, or part of a month, that your return is late. However, if you file on time but just can’t pay your tax bill then, you’ll generally face a late-payment penalty of only one-half of 1 percent of the tax owed for each month, or part of a month, that the tax remains unpaid. The total non-filing and non-payment penalties could reach a cumulative 25 percent maximum penalty. But if you file your forms on time and then make arrangements to pay, you can avoid taking that hardest tax penalty hit.
The remedy: File! And file on time. If you can’t afford to pay your full tax bill, send Uncle Sam at least a down payment. Even sending in an extension request with a nominal payment is better than not filing at all. Then worry about coming up with the cash. “Never, never, never don’t file! There’s no reason to put yourself in that position. File the return and establish a plan to deal with the consequences of not having the money.You have several payment options. Use a credit card to meet your tax debt then pay it off as quickly as possible. Go with the card that has the lowest interest rate or a zero-percent rate one if possible. The IRS also has payment plans. Though these add interest charges to your tax bill, at least you can be assured that you’re meeting your filing and payment obligations.
Face your tax fears early
By now, you should be a little less anxious about that impending return. And by taking a few steps now, you should be able to completely overcome most of these fears by the time your next return is due.Look at what caused your heart to race and your palms to sweat this filing season. With those fears fresh in your mind, map out a strategy to overcome them, starting now.Trying to pull things together at the end of year when you’re not organized during the year is not a good idea. You need to plan throughout the year, not in April.That way, when next tax season rolls around, fear won’t be a factor.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Get Your Taxes Done In A Week!
Taxes are like dust on a table. It always seems to show up and just sit there. No one wants anything to do with it, except maybe to write their name in it. And the longer it sits, the deeper it gets.
Completing your tax return can be a big job, but you don’t have to tackle it all at once. By spreading out the task, you can save your sanity and maybe a little tax money, too, since you’ll be more able to look for ways to cut your final bill.
Get taxes done in a weekHere’s how to get your taxes done in one week by spending just about an hour a day.
7-day tax-filing plan:
Day 1 Gather data.
Day 2 Reduce taxable income.
Day 3 Find your forms.
Day 4 Fill out your forms.
Day 5 Take a break.
Day 6 Check your work.
Day 7 Sign, seal and deliver.
Day 1: Gather data
Gather all your income data. It is, after all, called an income tax.
Find all your W-2 wage statements, any 1099-MISC forms if you did independent contract work and all the statements detailing just how much your savings and investments earned. If you sold a stock or other property, you’ll need those data, too.
Did you win the lottery? Obviously not the big jackpot or you would’ve hired someone else to worry about this now! But any amounts you win are taxable.
And if you’re enjoying your retirement, you may owe a part of those monthly pension checks to Uncle Sam.
Even if last year was a tough one financially, you may have some tax consequences. If you were out of work for a while and collected unemployment, those payments are taxable, and you should have received a Form 1099-G showing the amount.
Find all these income statements, clip them together and you’re done for the day. See you tomorrow!
Day 2: Reduce taxable income
Welcome back. Day two probably will be the fullest of our tax-filing plan, but it’s worth it.
Today we start slashing your tax bill.
Pull together all your exemption, deduction and tax credit info. These items will help you whittle down your income to the actual amount that the Internal Revenue Service will tax.You get to take $3,300 off the top for each person you claim as an exemption on your return. That’s generally a pretty easy determination: you, your spouse and any dependents, which generally means your kids. But did you care for a parent, even one who didn’t live in your home? You may be able to claim an exemption for that person, too.
Next, there are some expenses that any taxpayer can take without bothering with extra paperwork. These include certain IRA contributions, student loan interest, alimony payments or moving costs. Collect the backup for these non-itemizing expenses first.
Now check the standard deduction allowed for your filing status. Most taxpayers use this rather than bothering with tracking every expense to itemize. If the standard amount works for you, great! You may be through today in less than an hour.
But if you find itemizing will help cut your taxes, you’ve got a bit more work to do.
If you’re a homeowner, find the mortgage and property tax statement from your lender. In many cases, these amounts alone exceed the standard deduction. Don’t forget that you can also deduct any state and local taxes, so you’ll need the documentation of these payments.Philanthropic filers get a break, too. Your qualified cash and property donations can reduce your tax bill. Make sure you have an official receipt for any charitable gifts that were $250 or more.
Next, pull out your medical records for last year to see if your costs total 7.5 percent of your income. If they do, you can use them. If not, don’t waste any more time here.
And don’t overlook miscellaneous deductions. This amount has to total 2 percent of your income, but there are a lot of expenses you can include here – un-reimbursed employee business expenses, investment costs, even tax preparation fees.
If you’re self-employed, track down all receipts and documentation for any number of business-related expenses. This includes the mileage records you kept when using your car for business, the office equipment and supplies you bought, and the utility bills you paid to keep the home-office lights burning.
Now to the credits. These breaks can help cut your tax bill dollar for dollar.
If you didn’t make much, you may be eligible for the earned income tax credit. The break could be even larger if you have kids.
Even if you don’t qualify for the earned income credit, you may be eligible to take $1,000 per child off your tax bill. If you paid a nursery school to watch them while you worked, part of that cost may cut your taxes. Pull child care records for the exact amount you spent.
Credits also are available for some educational costs — yours and your children’s. You’ll need these details. And there’s even a credit to cover some adoption expenses.
Once you’ve found all this material, stack it next to your income info. You’re finally through for the day.
Day 3: Find your forms
Now that you know what you made and how you can reduce it to a more tolerable taxable level, find the forms you’ll need to file.
The IRS offers three individual tax return forms: the 1040EZ, 1040A and 1040. Each has specific requirements you have to meet to use it.
It may be tempting to use the simplest form, the 1040EZ, if you’re eligible. But you should look at the other two anyway. Generally, the longer versions offer more opportunities for tax breaks. For example, the deduction for up to $2,500 in student loan interest can’t be claimed by EZ filers.
Once you’ve made your choice, take a few minutes to read over the form. Here you’ll see exactly where you’ll put the information you gathered on days one and two, and where the deductions and credits are subtracted. (But don’t enter anything yet! We’ve got to have something to look forward to!)
In addition to your main tax form, you’ll get an idea of any additional forms you may need. Where an attachment is required, it will be noted on the individual tax return you file.
For example, if you opted for the long 1040 return, you’ll likely need Schedule A (referenced on line 40 of the 1040) to itemize your deductions. You also might want Schedule B (asked for on the 1040, line 8 and line 9) if you have a lot of interest or dividend income to report. Self-employed taxpayers will see mention of Schedule C or Schedule C-EZ (line 12 of the 1040), along with the accompanying Schedule SE to pay self-employment taxes, (the 1040′s line 27 as a deduction and line 58 as a payment).
For most taxpayers, encountering unfamiliar paperwork is a big aggravation. But by examining the forms beforehand, you’ll have a heads-up about what to expect when it comes time — tomorrow! — to start filling them in.
Day 4: Fill out your forms
Now the real fun begins. Today we put pencil to paper to complete your return.
Actually, this should be a piece of cake (and one that’s preferable to that aging fruit-filled holiday concoction!) because you’ve already got your income, deduction, exemption and credit information at your fingertips.
You can either work your way through income and deduction data stacks, entering the info at the appropriate tax return lines, or you can start at the beginning of your chosen 1040 and work your way down the return. It’s a matter of personal preference, but if you’re not overly comfortable in filing your taxes, you’re probably better off going with the line-by-line approach.
A tip for entering information: Have the instruction book for your return handy. The 1040 and additional forms are pretty skeletal. The instructions help flesh out your entries, provide work sheets you might need and, in some cases, even let you know that a certain line doesn’t apply to your filing situation.
Plus, the instructions are where you’ll find the tax tables. You’ll need these to see just what your tax bill is.
Day 5: Take a break
Ignore your taxes.
You’ve made it past the filing halfway mark. You deserve a break!
Take today’s tax hour and read a book, take a walk or luxuriate in a bubble bath. Tomorrow and taxes will be here soon enough.
Day 6: Check your work
OK, back to the filing grindstone. Today, with a fresh eye, double-check your tax form entries. When people inspect their returns right after they’ve filled them out, they tend to see what they know should be entered, rather than what is actually on the form. But thanks to yesterday’s break, your review today will give you a new perspective.
Simple entry errors, both text and mathematical, are the most common tax-filing mistakes.
Make sure you haven’t overlooked a deduction or a transposed dollar amount.
Don’t forget the obvious. Check names — yours, your spouse’s, the kids, any other dependents. Make sure you’ve entered the Social Security number for each and that the numbers are correct.
Finally, if you’re not using computer software or an online program to make your calculations, plug in the adding machine and check your addition and subtraction again.
Day 7: Sign, seal and deliver
We’re in the home stretch. Confident that you’ve counted all your income, taken all the deductions you can and entered your information correctly and completely, it’s time to wrap up your annual tax filing.
Make one final check of your return to guarantee that all is in order. Then sign it, make yourself a copy and send it on its way, either via the post office (make sure you’ve put enough stamps on the envelope) or by hitting the “enter” button on your computer keyboard.
And what to do with the rest of today’s tax-filing hour?
Pour yourself a cold one, kick back and congratulate yourself on conquering your taxes in one relatively hassle-free week!
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – How To Find The Best Tax Software
However, if your taxes are basic, you probably won’t save that much time by doing them electronically with tax software.
It is important to check if the tax software program generates state tax returns or if you have to pay extra for state income tax software. Often you need to buy the deluxe version of the tax software to be able to file both forms but the added benefit of this is that these will include many additional features such as tax advice, IRS publications and other information along with accurate form preparation.
You may not necessarily need to buy a specialized tax software program as there are a lot of services available on the internet that allow you to prepare and file your return from their website for a small fee.
It is essential that you ensure that your computer meets the minimum system requirements of any tax software program that you download or buy. It is also worth investing in a printer so that you can make a hard copy of the forms that you file, even if you file them electronically over the internet.
Also make sure that you use the current version of a any tax software program as it changes every year along with tax laws. Most tax software will allow you to upgrade quickly and easily.
Remember that you might even be able to deduct the cost of your tax software from your federal income taxes so it is worth spending a little more to ensure that you have the best.
S. Raines, Sr. financial Advisor/Tax Preparer
Tax Debt Help – Tax Prep 101 – Lesson #2
Getting Organized for the Tax Year
Even if your tax situation isn’t complicated, there’s still documentation the Internal Revenue Service demands. But tax filing doesn’t have to be an ordeal. And it can be less frustrating and less time-consuming if you have all the material at your fingertips.
By being prepared, you’ll be ready to file your return at the earliest possible moment (the IRS usually starts accepting returns around mid-January). And the earlier you file, the sooner you’ll get your refund.
Much of the paperwork you’ll need to complete your Form 1040 will tell the IRS how much money you made so they can tax it. But there also is information that will help you trim your tax bill.
To help you organize your tax paperwork, here are some of the most common documents you’ll need.
Filing by the (identification) numbers
The IRS tracks every taxpayer through a Social Security number. For those of you who file your own returns, this isn’t a problem. But if you drop all your data off at your accountant’s office, make sure that your Social Security number is in there, as well as your spouse’s if you file jointly.
Do you have any dependents — children, parents — that you’ll be claiming? Then you’ll need those numbers, too. This includes everyone, even infants. If your kids don’t have their numbers yet, contact the Social Security Administration immediately. A missing Social Security number for any person listed on your return could cost you.
The IRS could delay the processing of your return, slow down any refund, or even disallow a credit if you don’t have the identification numbers to support it.
And don’t forget the tax identification number of the person or business that takes care of the kids while you’re at work. You’ll need it if you file for the child care credit. You should receive a statement from the care provider that includes his or her tax ID number, as well as the amount you paid, so you can use it to claim the credit.
It is called an income tax
Since it’s our income that the taxman wants a piece of, start thinking about the employment and income data you’ll need to file.
By the end of January, employees should get a Form W-2 from the boss showing how much was earned, how much is taxable and just what taxes were withheld. If you have more than one job, you should get a Form W-2 from each employer.
You say you’re still waiting for your W-2? The IRS has a substitute form, Form 4852, you can use in its place. You’ll need last year’s final pay stub for data to enter on the alternate W-2. And even if you have your official tax form, check it against that last pay stub to make sure the W-2 data is correct.
If you’re an independent contractor, the company you worked for should send you a Form 1099-MISC showing your gross earnings. You can view, but not download, Form 1099-MISC online at the IRS Web site.
If you’re self-employed, you have a bit more work to get organized. Track down all receipts and documentation for business-related expenses, from the mileage records you kept when using your car for business to the office equipment and supplies you bought to the utility bills you paid to keep the home-office lights on.
IRS interest in your other assets
Wage income isn’t the only earnings that the IRS taxes. Are you saving money for your kid’s college, a new house or retirement? Good for you — and the taxman. Interest earned on most savings accounts is taxable.
You should get statements from each of the account holders, as well as formal tax forms. Copies of the forms also go to the IRS.
For interest earnings, these documents are typically Form 1099-INT.
If you’ve branched out into stocks or mutual funds, you should get a Form 1099-DIV for each stock, mutual fund or money market account. Reports on the proceeds from broker transactions, if you use one, will be sent to you on a Form 1099-B.
Just like with your final paycheck stub, hang onto your year-end financial statements to compare with the official final tax documents.
That pesky miscellaneous income
Did you get a state tax refund last year? Did you rent out that old house you fixed up? Did you finally settle into retirement thanks to those monthly pension checks? There’s a place for each of these on your tax return, so start getting this paperwork in order, too.
State and federal tax collectors work together. In the case of state tax refunds, that means the Form 1099-G you get detailing your refund also goes to the IRS, so hang on to your copy and report it.
Rental property can provide a nice boost to your balance sheet. But make sure you keep track of all it cost you to keep your tenants happy. These expenses can be used to offset your rent income, and that means less of your investment property earnings are taxable.
Some retirement payouts are taxable, at least in part. To help you determine exactly how much you owe you’ll get a Form 1099-R showing how much was paid to you during the year.
But what if it wasn’t such a good year financially, let’s say you were out of work for a while and collected unemployment. Sorry, but unemployment is taxable. You’ll get a separate Form 1099-G for this, so it needs to go into your filing preparation package.
Tax trimming starts at home
OK, you know what information you’ll need to report your income. Now it’s time to do the pre-filing preparation that could help you trim the taxable amount.
Costs related to your home are a good place to start.
Homeowners know the value of a mortgage. Not only does the loan get you into your house, but the interest you pay on it is deductible. Your lender will send you a Form 1098 with this amount. You can check out your loan amortization schedule and get an idea of just what the deductible interest amount will be.
If you made an extra mortgage payment at the end of last year to up that interest amount, make sure it’s counted. Sometimes lenders use automatic reporting programs that overlook extra payments. You can still claim the extra interest; just make sure you document it in case the IRS follows up.
Mortgage interest isn’t limited to your primary residence. If you have a vacation home, interest on that loan will be on a separate Form 1098 — and is just as deductible.
And don’t forget the interest you paid on a home equity loan. Your year-end loan account statement will tell you how much this was, and in most cases it’s deductible on your Schedule A, too.
Using taxes to reduce taxes
Homeowners get another way to reduce what they pay to Uncle Sam — using the real estate taxes they pay as a deduction.
If part of your mortgage payment each month includes an escrow amount that’s used to pay annual real estate taxes, then the 1098 form you get from your lender also will tell you this amount.
Then there are any state and local income taxes you paid. Check your W-2 for this information, and be sure to deduct it, too.
Don’t own a house? Don’t despair. There’s still a tax deduction opportunity for you if your state or county charges a personal property tax. Most often, this tax is on autos, so if you pay, make sure the collecting tax agency sends you a statement showing how much so you can put it on your Schedule A.
Work expenses can cut your taxes
Did you look for a new job this year? Kept your job, but had to shell out for work-related items and never got paid back? Move to take a new job?
All of these situations can help reduce your tax bill, as long as you’ve got the documentation. In the case of job searches, find those receipts for anything related to your hunt — as long as you’re looking for work in the same field.
If you kept your current job, but had to pay for some items that your boss didn’t reimburse you for — travel expenses, uniforms, union dues, subscriptions — then these can be deducted as miscellaneous items on Schedule A. Again, you’ll need the receipts, so go through your paperwork collection carefully.
Good works, good records, good tax break
Good deeds can be their own reward; they also can reward you at tax time.
Cash donations to qualified charities can be deducted, and you should get a note from the charity acknowledging your gift if it was $250 or more. Next year, you’ll need this documentation for every cash gift, regardless of how large or small.
You’ll also need that receipt you got when you dropped those clothes and books off at the local Goodwill collection center to claim a deduction. If you donated the items after Aug. 17, you also better make sure that the articles were in good or better shape. A new law allows the IRS to deny deductions for anything that’s deemed of “minimal monetary value.” So, no giving away threadbare sweaters that really should go in the trash and then writing the gift off.
But you still can get credit if you volunteered at the local soup kitchen. No, you can’t deduct the value of your time, but if you drove there, then you can deduct your mileage at 14 cents per mile as a charitable gift. Documentation of your effort can be as easy as a notation in your calendar of the days you worked and where the shelter is located.
Accurate taxes require accurate information
Now that you know what data you’ll need to file your taxes you’ve taken a big first step in the process.
By knowing what information you need, digging out those documents now and keeping track of all the tax-related account statements you’ve received, you’ll immediately realize if you’re missing anything or if something needs to be corrected.
In either case, you still have plenty of time to track down the proper documentation — saving you time, anxiety and possibly money when you file your return.
S. Raines, Sr. Financial Advisor/Tax Preparer
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