Your Personal Tax Return – A Nightmare or a Cakewalk!

It’s Your Choice!

Pros and Cons of Preparing Your Own Tax Return

A.  What is needed to prepare your own return?

·        Details, details, details

·        Patience, patience, patience

·        Act Early – Don’t wait until April!

·        Get organized – sort out checks, credit-card statements, paid invoices, bills etc. by category (eg. medical expenses, charitable donations, travel and entertainment, and any other items that you will need on your tax return.)

·        Obtain all necessary records – W-2’s, 1099’s, etc.

·        Keep up with new tax law changes – deductions, expenses, tax rates, etc.

·        Keep good records – organized filing system vs. shoe box

·        A list of all medications needed to complete the return

B.  What is your best tax return choice?

·        Should you and your spouse file jointly or separately?

·        Do you qualify for Head of Household?

·        What is the best filing status that you can qualify for?  Know the laws on this – It can save you hundreds of dollars in the taxes you have to pay or increase your refund.

Hint: Your tax return is your “financial statement”.  Everyone should try to prepare their own return!! Only go to a preparer after you tried to prepare your own tax return!!

C.  Things to look for when purchasing Tax Preparation Software   

·        Years in tax software business

·        Referrals

·        Number of  updates/cost of those updates

·        Schedules software will produce

·        Customer service

·        Electronic filing offered

·        Price

·        Guarantee of services

*Note:  Remember, when you file through any software company, they will then have your tax and financial information on their files.  Be sure to note what their security guarantees are.

D.  What to look for in a Tax Preparer

·        Honesty and Integrity

·        Knowledge and experience

·        Credentials

·        Years in business

·        IRS related experience

·        Price

·        Service

·        GUARANTEE OF SERVICES

Top Ten Filing Mistakes

Please use the 1040 form provided as a reference sheet

1.      Form 1040 top right – Wrong social security number

2.      Line 22 , 35 & 36 – Adding income, deductions or credits incorrectly

3.      Line 44 – Incorrect amount of tax entered from tax table

4.      Line 48 – Error in computing the credit for child and dependent care expenses –Form 2441

5.      Line 64 - Entering Social Security tax instead of Federal Withholding tax from W-2 form.

6.      Line 65 – Income tax withholding and estimated tax payments entered on wrong line

7.      Line 66a – Not claiming the earned income credit

8.      Lines 72, 73a and 74 – Indicating overpayment to be credited to estimated tax when you actually want a refund

9.      Line 72, 73a, or 75 – Incorrect computation of refund or balance due

10.  Schedule A – Computation error when figuring medical and dental expanses (.075 of adjusted gross income)

Tax Free Ideas

1. Selling your home

·        If you have a gain from the sale of your PRINCIPLE RESIDENCE, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).  Any gain not excluded is taxable

·        Loss – You cannot deduct a loss from the sale of your PRINCIPLE RESIDENCE.

·        Principle Residence – the home you live in most of the time.  Can be a:

1.      House

2.      Houseboat

3.      Mobile Home

4.      Cooperative Apartment

5.      Condominium

·        Exclusions – To claim the capital gain exclusion you must meet the ownership and use tests.

1.      Owned the home for at least 2 years (ownership test) AND

2.      Lived in the home as your principle residence for at least 2 of the last 5 years (use test)

2. IRA Rollovers

No tax is payable on a lump-sum distribution that is received from a company pension plan if you put it into an IRA within 60 days.  You can also take money tax free from your IRA if you roll it over within 60 days into another IRA.

3. Life Insurance

The beneficiary gets the full amount tax free

4. Child Support Payments

Child support payments are tax free to the recipient and are NOT deductible for the payer.

5. Alimony Payments Money Recovered in lawsuits

Alimony payments to a spouse or an ex-spouse are taxable to the recipient and are deductible to the payer.

6. Welfare Benefits

Welfare benefits are tax free

7. Disability Payments

Disability payments from accident and health insurance plans are tax free if you paid for the insurance but taxable if you employer paid the premiums.

8. Social Security Payments

Social Security Payment may be taxable!  A calculation using the filing status must be completed to determine taxability of Social Security payments.