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Preparing a Tax Return
Today we have many choices to select from when preparing a tax return; manual tax
preparation (the old fashioned way), online tax preparation, buying a tax
preparation software program and installing it on our home computer or paying a
professional tax preparer.
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First gather all the documents and receipts that pertain to the 2004 tax year. This is a process that should begin on the first day of your tax year. Use manila folders or brown envelopes to keep your records organized. Please see our Tax Preparation Checklist for what records to find before you begin to prepare your tax return. If you're not using a software tax program, or using an online tax preparation service and are brave enough to do your return
manually, get a 2004 Form 1040 Instruction book.
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You can download and print out an instruction booklet from the IRS website. The instructions will give you an
idea of the forms you will need. You will need the booklet when you calculate
your income tax. If your taxable income is less than $100,000 you should use the
tax tables in the instruction booklet.
I usually advocate self
preparation and it seems a shame that we do not teach tax preparation skills in
our high schools and colleges. I would like to see our Public School system
teach what I consider to be "life skills" such as buying life insurance,
changing the oil in your car, how to make a tossed salad and how to prepare a
simple tax return. In any case, if you prepare your own tax return, bravo! Don't
be too proud to have an experienced tax preparer review it for completeness and
compliance with our ever changing tax laws.
I like to think of a tax
return in outline form with five sections: Filing Status & Exemptions Income
Adjustments Tax & Credits a) Itemized deductions b) Credits c) Dreaded
Alternative Minimum Tax Payments
Separate your documents and receipts
into these five categories and understand that some document may overlap
categories. For example, your W-2 will contain your salary and wages income and
Payment (withholding tax) information. I believe that the more organized you
are, the less tax you will pay. Tax preparation does not begin on April 14th.
It's a full time, every day job.
To repeat an earlier comment, if you
have a fairly complex return, I would recommend having it reviewed by a
competent tax preparer. A little time spent reviewing the return may save you
and your spouse grief and money if you are audited and the IRS challenges your
treatment of an item on your tax return.
Common Mistakes to Avoid
Enter the correct social security numbers for your self, your wife
and your dependents If you were married in 2004 make sure your wife has changed
her name with Social Security Check the box in the last column for each
dependent under the age of 17 who qualifies for the child tax credit Check your
math, preferably with an adding machine that has a tape Remember to sign and
date your tax return and enter your occupation. Attach your forms W-2 and
assemble all your forms and schedules. Put all forms and schedules in the proper
order. Use the "Attachment Sequence No" shown in the upper right corner of the
schedule or form.
Mail Tax Return by Certified Mail
It's always
a good idea to send your return by certified mail. This is especially important
when you are sending a large check with your return. If the envelope is not
delivered and you have to replace the check, you will be charged penalties for
late payment, filing and failure to pay.
Record Retention
How
long should you keep your tax return and its related documents and receipts? The
statue of limitations runs for three years from the time you filed your tax
return. Some records should be kept longer. For example, if you buy stocks,
mutual finds or other investment property, you should keep records of your
acquisition costs until you dispose of the investment. I can think of two
reasons to keep your tax returns longer. 1)Should you ever need to have a
security check done, your tax returns will show the addresses of the places
where you lived. 2) Your tax returns show your income which should be reconciled
with Social Security Administration records of your lifetime
earnings.
What if I don't have my W-2 form?
If you don't receive your Form W-2 by February 15, contact the IRS for assistance at (800) 829-1040. Also, you may want to refer to Tax Topic 154, Form W-2 - What To Do if Not Received, to see the specific information the IRS will need in order to prepare Form 4852, Substitute For a Missing Form W-2. If you file your return and attach Form 4852 to support the withholding amount claimed instead of a Form
W-2, your refund can be delayed while the information you gave us is verified.
If you receive a Form W-2 after you file your return and it does not agree with
the income or withheld tax you reported on your return, file an amended return
on Form 1040X , Amended U.S. Individual Income Tax Return.
Injured Spouse ClaimThe IRS offset program allows the IRS to withhold a joint
refund id one spouse owes past due child support, spousal maintenance, federal
debts (student loans), or a state tax judgment. By filing Form 8379, Injured
Spouse Claim and Allocation, the spouse not required to pay the past due amount
may receive all or a portion of the joint refund. Part II of Form 8379 allocates
income and deductions between the spouses.. Form 8379 can be filed separately or
attached to Form 1040. If attached to Form 1040, write "Injured Spouse" in the
upper left corner of page 1 of the return.
The Treasury Inspector General
for Tax Administration (TIGTA) said in its audit report (200440021) that the IRS
did not provide taxpayers with consistent information to ensure they can easily
and correctly comply with the injured spouse provisions. The TIGTA report cites
Form 8379 for not advising taxpayers that they can file injured spouse claims
for prior years or that there is a six year statue of limitations on filing
these claims.
What if I can't pay my taxes?
Remember, not
filing a tax return is a criminal offense, while not paying your taxes invokes
only civil penalties and interest. By all means, file your return by the tax
deadline every year! After your return is filed you will receive a collection
letter. At that time, contact the IRS and work out a payment arrangement plan.
Oftentimes no payment plan is required if your income less necessary living
expenses are the same.
Taxpayers can prepare and file IRS Form 9465,
Installment Agreement request. Attach the Form 9465 to the front of your return.
The IRS will accept installment agreements if the unpaid taxes are $25,000 or
less and the tax will be paid within five years. If a payment plan is a
arranged, the IRS will charge a $43 user fee which is deducted from the first
payment.
Tax Preparation
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| ©2010 Michael Johnston, CPA. All Rights Reserved. |
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