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Tax Preparation Tips
Third Party Designee
When you pay someone to do your income taxes (a “paid preparer”), ask them if they will be your IRS contact. This means that if the IRS has any questions regarding your tax return, the IRS can contact them with the concern. If you decide to do this, simply check the “yes” box in the Third Party Designee area of your income tax return. By having this designee, you are authorizing them to receive copies of any IRS notice or letters (i.e. correspondence) relating to your return. You also are authorizing your designee to call the IRS with any questions about the refund or processing of your return. Your designee will also be responsible for any math errors on your income tax return.
Certified Public Accountants, or independent public accounting firms, are usually third party designees. They maintain client files and handle all IRS tax concerns regarding their tax clients. As an example: every time a client receives an IRS Notice, the CPA (or his/her office staff under their direction) contacts the IRS regarding the matter. The client does not have to contact the IRS personally. The IRS Notice is then put into the client file.
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Tax Preparation Documents
H&R Block Tip: Income tax preparation is made easier if you organize your records throughout the year. By having your records organized when you sit down to file your taxes online, you can save yourself time and frustration. Maintain separate files for receipts and expenses. Reconcile your bank statement monthly. This helps you notice any discrepancies. Tax software programs, like TaxCut, will tell you what receipts and expense forms you need to have ready before starting the tax form preparation program.
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Social Security Income Tax
In conjunction with your other other social security income tax payments, you must include tax-exempt interest when you are preparing your social security income tax preparation. Also, if you are married and filing a joint return, you have to use the total of your spouse's income, your income (other than Social Security), plus your social security and equivalent tier 1-railroad retirement benefits when figuring the taxable portion of the benefits. There is a worksheet in the Form 1040 or Form 1040A in the instruction book for base amounts and other taxable information. There are instances where you're SSI and/or your Disability Benefits are taxable.
In regards to SSI income tax preparation, you must first look at the base amount you are filing against the total of one half of your social security payments in addition to all of your other income.
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Tax Prep Checklist
H&R Block Tip: When filing taxes, it is a good idea to fill out your income tax return and put it aside for a day. With all the forms, deductions, receipts and calculators that may accumulate during your tax form preparation period, it's easy to get overwhelmed when preparing your taxes. Start your tax preparation early and after filling out your forms - either by hand or through an online tax preparation software program like TaxCut from H&R Block - put everything away for a day. That way, when you review your tax forms again, you will be reviewing it with “new eyes”. This is a great way to catch any errors.
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Estimating Your Taxes
You will need to estimate your taxes if, for instance, you are self-employed or make large gains on your investments. The IRS wants its money every quarter instead of waiting for a yearly return to be filed. When a company pays your wages you do not have to worry, but if you are self-employed, you must estimate social security, Medicare taxes, and income taxes every quarter. If you try to postpone the estimations until the dreaded April 15th, the IRS will charge penalties and interest. Beware - if you do not estimate your taxes correctly you will receive a penalty even if money is due you!
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Free Tax Preparation
H&R Block Tip: Many free tax preparation programs also offer free electronic filing (e-filing) of income tax returns. If you're using a tax software program like TaxCut, you can also choose to efile through the program. Before accepting electronically filed returns, the IRS will match the following information with that in your record: * Last names of both spouses on joint returns * Taxpayers' birth dates * Social Security numbers and certain other information
Always review your efile taxes carefully to ensure accuracy and completeness before filing. A tax software program is a good idea and will help organize and double-check your tax forms before e-filing.
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File for an Extension
Whether you choose tax preparation services or online tax preparation there is a form you can file to ask for an extension of time - and there are no restrictions, so all taxpayers qualify. You might want to carefully review the free qualifications before starting. Check on states and income levels as each company has their own criteria for preparing free-filing forms.
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Paid Tax Preparation
H&R Block Tip: H&R Block offers a special benefit to taxpayers. If you visit an H&R Block tax professional and then purchase their tax software program, the cost of the program will be deducted from your in-person consultation. Another benefit offered by H&R Block is their $25 coupon good for your in-office income tax preparation. This coupon can be printed from their website at hrblock.com. You also can receive an Instant Money Advance Loan without having your W-2. By going into your local H&R Block office, you can apply for up to $2,500 before the end of January (January 31, 2007). For your convenience, H&R Block allows you to either sit down with a tax preparer or simply drop off your tax information. If you choose to do business online, H&R Block offers an online office. You can prepare your tax return and have them check it and file it. The choice is yours. H&R Block includes a Maximum Refund Guarantee with all products purchased. This guarantee states that you will get the maximum refund you are entitled to or your tax return preparation is free. In addition to offering an online office, in-person offices, and a library of online income tax forms, H&R Block online also contains a wealth of tax preparation online tips and tools. These include tax law changes, a Deduction Finder, Withhold Calculator, Tax Estimator, Daycare Tax Benefits Calculator, filing statuses and rates, and an AMT estimator. Plus, for those so inclined, you can get information on the tax classes they offer.
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State Income Tax
If you live in a state that has a sales tax but no state income tax, such as Florida, Nevada or Wyoming, you actually can deduct sales tax paid throughout the year. American Jobs Creation Act of 2004 gives taxpayers in certain states that have no income tax the option to claim state and local sales taxes paid when they itemize deductions. Use the IRS estimation chart to assist you if necessary. Please remember that this option is available for 2005 federal returns only.
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Tax Preparation Tip
H&R Block Tip: There are many popular, affordable tax software packages on the market, including TaxCut from H&R Block. Each of these programs includes free tax forms that print once you complete the automated tax preparation process. The software programs include the standard 1040EZ, 1040A, and 1040 forms as well as a complete range of other federal tax forms that your personal tax situation may require. Mistakes can happen, so if you need to file a correction after you file taxes with the IRS, make sure you have Form 1040X available. You'll have to print out this form and manually fill out the tax corrections, then mail it to the IRS. Before you file your taxes, make sure you're up to date on all the latest tax news and how your tax filings could be affected. Get tax tips, including tax law changes, calculators and tax planning tips from the online tax tips resource center at H&R Block.
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File For Free
Butterflies are free and for some taxpayers, so is filing your taxes! If you are a taxpayer with an adjusted gross income of $50,000 or less, you are eligible to file with Free File. Free File is online tax preparation and electronic filing that has created a partnership agreement between the IRS and the Free File Alliance, LLC. So, if you meet this one little guideline, yes you can file free…with e-file.
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Tax Preparation Checklist
Is there a checklist for preparing my income tax preparation?
Although this list is not “written in stone”, it might save you time and remind you what documents you will need for filing.
For personal data you need: social security numbers for you and your dependents. Employment and Income forms will consist of W-2s, pensions/annuities, alimony if applicable, jury duty, prizes/awards, Scholarships/fellowships, state/local income tax refund and gambling and lottery winnings.
Homeowners will need mortgage interest and form 1098 for all homes. If you sold your home or other estate, use Form 1099-S. Don't forget moving expenses. Renters will need there yearly receipts.
Documentation on all financial assets including interest, dividends, proceeds and retirement plans. Liabilities include Auto loans, student loans and early withdrawal penalties on CDs etc. Remember charity donations, IRA and such, job hunting, child care and even last year's tax return fees!
Income tax preparation just might go a little more smoothly following this list.
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Keep it Simple
When it comes to taxes, simple is better. Finding the simplest forms for your situation are advisable, because making a mistake that could cost you a delay in processing your taxes and any due refunds. The Federal Tax Return Preparation form that is the simplest is 1040EZ. Form 1040A has additional items not covered in the EZ. Use Form 1040 when you itemize deductions and report complicated investments and other income. Note: The income limit for Forms 1040EZ and 1040A has increased to taxable income of less than $100,000.
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Can't Afford to Pay? Call the IRS
If you can't pay your taxes, the IRS will set up a payment plan and mail out the paperwork for you to sign. You even get to choose the monthly payment day as long as it's between the 1st and the 28th. Or download Form 9465 from the IRS website and mail it in. You will receive a response within 30 days. You do have the option of filing an extension using Form 4868. Regardless of which one you choose, don't blow it off! The penalty for not filing is 5% per month up to a max of 25% of balance due. Did you know you could file an extension and pay taxes at the same time? There are two IRS-approved credit card services. One is Link2Gov offering extension payments and the other is called Official Payments. There is a 2.49% convenience fee for using either service.
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Start a Filing System
Whether you plan on using tax preparation services or doing it your own, online tax preparation will make your life much easier. Keep everything in color-coded files and you can keep all those labeled envelopes together by placing them into a large manila folder. Better yet, try a large coupon book or accordion folder that you can buy at a local office supply store. A filing system will make your income tax prep a lot simpler. As you get receipts, tuck them into an appropriate envelope labeling them as rent/mortgage interest, property taxes, medical expense, investments, charitable donations and so on.
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Calculating Tax Estimates
In order to calculate your estimated taxes you can use your prior year adjusted gross income. Suppose it was less than $125,000 - then you can pay either 90 percent of this year's or 100 percent of last year's income tax liability. After you estimate your taxes for the term, make sure you divide this amount into fourths and pay appropriately. Note: If you are a farmer, change the 90 percent shown above to 66.67 percent. There are many different rules that apply to farmers so you might want to refer to IRS Publication 225: Farmer's Tax Guide.
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Using a Tax Preparer
Two well-known tax preparation services include H&R Block and Jackson Hewitt. To meet growing needs, H&R Block is no longer focusing just on tax preparation but on comprehensive financial services as well. The company offers brokerage services, annuities, mutual funds, and IRAs available in centers and on its Web site.
Jackson Hewitt is the second largest tax preparation service company with over 5,400 offices in 49 states and the District of Columbia. Specializing in electronic filing they provide full service, individual federal and state income tax preparation as well as other related financial products.
Oh and of course let's not leave out the major contact source, Mr. IRS himself!
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File Early, Save Later
The earlier the better. It is never too soon when it comes to preparing for the tax season. The government and tax professionals always encourage taxpayers to get a jump on their Federal Tax Return preparation, especially since filing early avoids the last minute rush. Here are some steps to get ahead on your taxes:
• Have all the records you need including W-2s and 1099s. Don't forget to save a copy for your records.
• Make sure you have all the correct forms. Did you know they are available around the clock on the IRS Web site.
• Do not rush! Take a break, walk around and clear the mind! Mood music any one? For heaven sake don't stress - you're likely to make silly mistakes.
• Double-check, and then triple check all your calculations and make sure the Social Security numbers you're using are correct.
Remember: the IRS is there to help. Try IRS.gov or call toll free at 1-800-829-1040.
