Are You Ready?
you are like most taxpayers, you find yourself with an ominous
stack of "homework" around TAX TIME! Unfortunately, the job of
pulling together the records for your tax appointment is never
easy, but the effort usually pays off when it comes to the
extra tax you save!
When you arrive at your appointment fully prepared, you'll
have more time to: Consider every possible legal deduction,
Better evaluate your options for reporting income and
deductions to choose those best suited to your situation,
Explore current law changes that affect your tax status, Talk
about possible law changes and discuss tax planning
alternatives that could reduce your future tax liability.
Choosing Your Best Alternative
The tax law allows a variety of methods for
handling income and deductions on your return. Choices made at
the time you prepare your return often affect not only the
current year, but later-year returns as well. When you're full
prepared for your appointment, you will have more time to
explore all avenues available for lowering your tax. For
example, the law allows choices in transactions like: Sales of
Property ... If you're receiving payments on a sales contract
over a period of years, you are sometimes able to choose
between reporting the whole gain in the year you sell or over
a period of time, as you receive payments from the buyer.
Depreciation ... You're able to deduct the cost of your
investment in certain business property using different
methods. You can either depreciate the cost over a number of
years or, in certain cases, you can deduct them all in one
Where To Begin?
Ideally, preparation for your tax appointment
should begin in January of the tax year you're working with.
Right after the New Year, set up a safe storage location --a
file drawer, a cupboard, a safe, etc. As your receive
pertinent records, file them right away, before they're
forgotten or lost. By making the practice a habit, you'll find
your job a lot easier when your actual appointment date rolls
around. Other general suggestions to consider for our
appointment preparations include .... Segregate your records
according to income and expense categories. For instance, file
medical expenses receipts in an envelope or folder, interest
payments in another, charitable donations in a third, etc. If
you receive an organizer or questionnaire to complete before
your appointment, make certain you fill out every section that
applies to you. (Important: Read all explanations and follow
instructions carefully to be sure you don't miss important
data--organizers are designed to remind you of transactions
you may miss otherwise).
Keep your annual income statements separate from your other
documents (e.g., W-2s from employers, 1099s from banks,
stockbrokers, etc., and K-1s from partnerships). Be sure to
take these documents to your appointment, including the
instructions for K-1s! Write down questions you may have so
you don't forget to ask them at the appointment. Review last
year's return. Compare your income on that return to the
income for the current year. For instance, a dividend from ABC
stock on your prior return may remind you that you sold ABC
this year and need to report the sale. Make certain that you
have social security numbers for all your dependents.
The IRS checks these carefully and can deny deductions for
returns filed without them. Compare deductions from last year
with your records for this year. Did you forget anything?
Collect any other documents and financial papers that you're
puzzled about. Prepare to bring these to your appointment so
you can ask about them.
To insure the greatest accuracy possible in all detail on your
return, make sure you review personal data. Check name(s),
address, social security number(s), and occupation(s) on last
year's return. Note any changes for this year. Although your
telephone number isn't required on your return, current home
and work number are always helpful should questions occur
during return preparation.
Marital Status Changes.
If your marital status changed during the year,
if you lived apart from your spouse, or your spouse died
during the year, list dates and details. Bring copies of
pre-nuptial, legal separation, divorce, or property settlement
agreements, if any, to your appointment.
have qualifying dependents, you will need to provide the
following for each: First and last name, Social Security number,
Age, Number of months living in your home, Their income amount
(both taxable and nontaxable). If you have dependent children
over age 18, note how long they were full-time students during
To qualify as your dependent, an individual must pass five
strict dependency tests. If you think a person qualifies as
your dependent (but you aren't sure), tally the amounts you
provided toward his/her support vs. the amounts the he/she
provided. This will simplify making a final decision about
whether you really qualify for the dependency deduction.
Transactions Deserve Special Treatment
require special treatment on your tax return. It's a good idea
to invest a little extra preparation effort when you have had
the following transactions: Sales of stock or other property:
All sales of stocks, bonds, securities, real estate and any
other type of property need to be reported on your return,
even if you had no profit or loss. List each sale and have
the purchase and sale documents available for each
transaction. Purchase date, sale date, cost and selling price
must all be noted on your return. Make sure this information
is contained on the documents you bring to your appointment.
Gifted or inherited property:
If you sell property that was given to you, you
need to determine when and for how much the original owner
purchased it. If you sell property you inherited, you need to
know the date of the decedent's death and the property's value
at that time. You may be able to find this information on
estate tax returns or in probate documents.
You may have sold stock or a mutual fund in
which you participated in a dividend reinvestment program. If
so, you will need to have records of each stock purchase made
with the reinvested dividends. Sale of home: If you sold your
main home (or a second home), record the amounts you spent on
improvements to the property. Improvements include things like
adding a room, renovating the bathroom or kitchen, etc. Jobs
such as painting usually aren't considered improvements for
this purpose. Information documents:
Property sales are usually reported to the government on Form
1099-B or Form 1099-S. Be sure to bring your copies of these
documents to your appointment.
Where you have used one or more automobiles for
business, list the expenses of each separately. The government
requires that you provide your total mileage, business miles
and commuting miles for each car on your return so be prepared
to have them available. If you were reimbursed for mileage
through an employer, know whether the reimbursement is
included in your W-2.
Make a list of property donations, including
acquisition dates, cost and value at the time you gave them
away. Make sure you have receipts from the charitable
organizations for donations of either cash or property! In
addition, you need to obtain, in a timely manner, written
acknowledgement from the charity of any contribution of $250
The purpose of this
information is to provide current information on tax,
financial and business developments. It suggests general tax
planning ideas that may be appropriate in certain situations.
The information and opinions are generalizations and may not
apply to all taxpayers; it is important that you seek
appropriate advice before implementing any of the ideas