It’s hard to believe that another tax season is fast approaching. With the holidays right around the corner, as soon as you finish your Thanksgiving turkey, you’ll be sitting in your accountant’s office or loading up tax software on your PC to help you file your return. The following are several ideas to help simplify the tax preparation process.
Get organized
The first step in preparing your taxes is to gather the information and forms you will need to complete your return. A good place to start is to look at your tax returns for the last three years and make a list of the items that were reported. For example, you should expect to receive a W2 form from each of the employers you worked for in 2008. Create a folder called Taxes 2008 and put the forms in it as you receive them. Use this folder to collect any other information or data you need for your presentation. Examples include information on mortgage interest, property taxes, accrued interest and dividends, stock information, IRA contributions, charitable giving, k1 calendars, college tuition, alimony, unemployment, 1099, social security received, medical expenses paid, etc. The point is to start getting organized early so that when it’s time to file your taxes, you’ll have all the information you’ll need in one place.
Related is the need for proper documentation. Proper documentation is needed for anything included on your tax return, and you should be aware of the documentation requirements. For example, charitable contributions of more than $250 must have a receipt in order to report the deduction. Another example is reporting any investment activity. Any sale through the stock exchange must be reported on your tax return. If you lost money in the sale, you can deduct up to $3,000 per year, and any additional losses carry over to subsequent years. When reporting any stock activity, make sure you have a breakdown of what was originally paid for the stock and what was sold. For example, if you bought xyz shares on May 1, 2008 for $100 and sold the shares on June 1, 2008 for $50, you have a $50 loss that is deductible.
For self-employed taxpayers, start preparing your profit and loss statements now. The sooner profit and loss statements are completed, the sooner your tax preparer can start working on the return, which could allow you to file a tax return sooner. In the event that money is owed, this gives you more time to make arrangements to generate the funds needed to pay off the debt.
find out
For taxpayers who have an accountant prepare their return, be sure to create a list of any questions you have for your accountant. If you don’t see an accountant, you can still get your questions answered. Some accounting firms will answer questions over the phone, and there is always the possibility to email your questions to a general mailbox. A good example of this would be asking about first-time homebuyer credit and what qualifications are needed to receive this benefit.
Beware of companies that charge excessive fees for certain tax preparation services provided. Don’t be fooled by refund incentives where the taxpayer walks away with a check in hand at the time of filing. This is called a quick refund. An expedited refund service fee, which can be quite high, may be deducted from your tax return. However, if you choose to apply electronically and wait 7-14 days for your refund, you will receive a full refund. All that is needed to file electronically is your bank’s routing number and your direct deposit account number. Another option is to have a check mailed to your address, which can take 4-6 weeks.
Choosing a professional to prepare your taxes should not be taken lightly or done at the last minute. It is important to feel comfortable with and trust your tax professional. A trusted accountant should be one of the many reliable sources available to you at all times, especially during the current economic situation. His tips and advice can help you make decisions and unravel the complexity of many financial transactions. If you don’t currently have an accountant, I recommend that you start 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 with, ask questions, and keep you up to date on the latest laws and requirements.