Tax return : the basics

The following list includes the 10 items you are likely to need when preparing your tax return. Although you may be required to provide additional information, this list brings you the most common items we have identified based on hundreds of our clients’ tax returns.

1. IRS form W2 -

summarizes your annual taxable wages, federal income tax withheld, social security withheld, Medicare withheld and state income tax withheld. Additionally your contribution to an employer based retirement plan is also listed on the W2.

2. Rental Income and Expenses, Cost of Property, Date property placed in service -

Rental income include actual payments received by the tenants during the tax year. As a cash basis tax payer, do not include any payments still owed by the tenant for the year, only payments received. Rental expenses include: management fees, mortgage interest, insurance, condo fee, cleaning, utilities, advertising, travel to and from the property, real estate taxes, legal and other professional fees and brokerage commissions. Cost of property and date placed in service are necessary to calculate depreciation.

3. Family members: Names, DOB, Social Security Numbers, Full Address -

To calculate personal exemptions, child tax credit, education credit, and child care expanse credit. Additionally EIC (”Earned Income Tax Credit”) is also calculated using this information.

4. Mortgage Interest Payments in 2005 (or form 1098) -

form 1098 summarizes your annual mortgage interest payments and any real estate taxes paid through your mortgage escrow account.

5. Property tax payments in 2005 (or form 1098) -

If you pay your real estate taxes independently of the mortgage escrow account you will need copy of your property tax year for the year or copies of cancelled check with which you paid your property tax.

6. Child care expenses paid in 2005 (for each child and per child care provider) -

The information necessary to calculate child care expenses credit includes names and social security numbers of the children, names, addresses and tax ID numbers of the day care providers.

7. Amount of money taken out from 401K (or form 1099-R) -

The IRS requires that your 401K company reports to you on IRS Form 1099-R any distributions that you took from your retirement plan last year even if you rolled them into another plan. The same information must be submitted to the IRS.

8. Interest / Dividend Income (US or foreign) (form 1099-INT, 1099-DIV) -

Those forms summarizes the interest and dividend payments you have received during the year from your bank, brokerage firm or any other U.S. source. The information provided to you is also submitted to the IRS.

9. Stock Sales and cost (form 1099-B) -

Summarizes the proceeds you have received from selling stocks during the year. The form lists the symbol of the stock sold, date of sale and number of units sold, proceeds received and commission paid. To calculate capital gains or losses you must assign cost to each of the stocks you have sold, and then need to group the stocks into 2 categories: long term (stocks held for a year or more) and short term (stocks held for less than a year).

10. Business Income and Expenses (or employee un-reimbursed expenses) -

Home office - if you use portion of your residency as home office

Job search - resume writing, interview travels, fax and phone calls, retainer paid to a job search firm

Professional expenses - courses and licenses

Investment expenses - margin interest

Travel - business travel or work related travel

Seminars - to keep you up to speed

Professional literature - books to maintain your experience and knowledge

Tax preparation expenses - payments to tax advisor or tax software

Legal expenses - if it was paid to generate income

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Our Clients
We focus on small and mid size businesses, non-profit organization and high income individuals. Client list comprised of corporations, non-profit organizations and high-tech employees. Our corporate clients operate in various industries:

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Do you like to hear the words “tax return?” You may if you are an accountant or if you always get a tax refund. Otherwise, these words may strike anxiety and fear into your heart and mind. Every year in the days, weeks and months before April 15th, people all over the U.S. rush to complete their tax return and check it for accuracy before they mail it in.
A big part of the work is collecting all of the documents and information that you will need to prepare your tax return whether you are doing it yourself or with someone else’s help.

Some people and small businesses hire an accountant or a tax preparation service to get their tax return ready to send in to the IRS. An accountant is a good choice if you know someone that you can trust to do it accurately and quickly. They should have CPA certification and be recognized by the regulating organization in your state. Once you have selected an accountant, make sure that they have all of the paperwork that they need to do your tax return.

As mentioned before, many people use a tax preparation service when they are filing a tax return. Sometimes these services offer specials and deals on their products such as free e-filing or a free state return when you do a federal return. Try to find a service that guarantees their work in case there are errors. Sometimes you can even take in your old returns and have them redone to find any money that you might be owed from past years. These types of services are usually quick and efficient.

Tax preparation software is available online through a download or you can buy it at a store. You can do your tax return easily and privately at your own pace in your own home. You can get professional or basic editions of the software depending on your needs and most of the programs will check for accuracy and errors before you file the return. You can even use these types of programs to e-file.

A free or low-cost option for lower income families and individuals is to go to VITA/TCE which is a volunteer group which does tax preparation for free for seniors and low-income individuals and families. Or, you can look at the IRS website and they will match you with a free tax preparation service according to your needs and income level.

Eriani Doyel writes articles about Finances. If you would like more information about tax refunds visit faqtaxes.com

Philadelphia Inquirer of March 21 reports IRS plans to allow
Tax preparers to sell your tax return data to marketers.

http://www.philly.com/mld/inquirer/business/14147002.htm

The IRS is considering a rules change that would allow our
most trusted financial advisors to sell entire tax returns of
consumers to marketers and data brokers! This would not only
be a serious ethical violation and breach of trust by tax
preparers, but may entirely undermine taxpayers trust in our
tax systems in the US.

This rules change is apparently proposed at the behest of
Congressman Ed Markey of Illinois who raised privacy concerns
when it was discovered that some tax preparers were
outsourcing tax preparation online to India and other
countries without privacy protections. It was supposedly to
prevent the loss of financial information to identity
thieves. How ironic that the rule change was proposed as a
privacy protection, when it allows outright sale of tax
returns to marketers and data brokers.

While so-called notification and consent by taxpayers is
required to allow this sale of information - can you imagine
anyone questioning their accountant about why he is asking
them to sign papers following tax return preparation? Most of
us put full trust in our tax preparers, accountants and
financial advisors when asked to sign documents. (I don’t
condone this, it’s just the way we operate - every person
should read every document and fully understand them
before signing.)

If tax professionals suffer even a momentary flash of
reduced ethical and moral standards during that brief signing
- they may choose not to disclose what we are signing and
count on us to either ask pointedly about the documents or
that we read large sheafs of prepared paperwork to find out
that we are about to sign away our financial privacy along
with signing our tax returns.

By now we should all be painfully aware of the endless stream
of data breaches, hacks, and dozens of cases of ineptitude by
data brokers and handlers of private personal financial
information.

This issue has somehow escaped much public notice since it
was first proposed by the IRS on December 7, 2005. Here is
the official government notice of the proposed IRS Rule
Change allowing the sale of tax return data by tax preparers
(38 page PDF file).
http://www.irs.gov/pub/irs-regs/13724302.pdf

The Philadelphia Inquirer offered an address to protest the
rules change. It’s too late to comment electronically, but the IRS
may still consider written comments by mail if you write to:

CC:PA:LPD:PR (REG-137243-02)
Room 5203
Internal Revenue Service, Box 7604
Ben Franklin Station, Washington, D.C. 20044.

This is so patently offensive that it is difficult to
comprehend. I want to know who convinced the IRS rulemakers
to slip this proposal in so quietly. Did Congressman Markey
have a hand in the rule language or was that a back room deal
with data brokers?

Could it be that it was a lobbyist for beancounters who
make their living by doing taxes for median income families?
It certainly isn’t likely to have been Ernst & Young looking
for extra little profit centers they might exploit in their
corporate client tax filings.

Who would profit most from this? The data brokers and credit
reporting agencies - just follow the money. Who wants access
to broad swaths of taxpayer information? Those who don’t
currently have it yet - marketers, and dozens of subsidiary
data brokers who currently don’t have access to income
(and spending) data of Americans directly from tax forms.

Imagine rich new income streams data brokers would have to
sell information to marketers about our buying habits, airline
preferences, hotel choices, internet service providers,
travel information, cell phone providers - all right there on
our itemized deductions list.

A joint press release has been distributed by three separate
consumer organizations calling for removal of language in
the proposed rules that would allow for sale of information
in taxpayer tax returns to third parties for purposes of
selling “Subsidiary Services” to taxpayers. That broad
language is the focus of concern.

http://snipurl.com/IRS_Privacy (Consumer Federation PDF)

Since many of us are on the current “Do Not Call” list and
out of reach of telemarketing annoyance, you can bet your
junkmail volume would increase dramatically after your
spending habits are so well documented to marketing firms -
right off of your tax forms, which they legally purchased!

If this were the only concern - it would be enough to rattle
most Americans trust in our government. But it isn’t the end
of the story - we lose control over our financial data and
risk identity theft on a grand scale once the information is
in the hands of marketers. Just stop what you are doing and
go write a letter to the IRS at the address above to demand
that they stop this sellout to data brokers and marketers.

Copyright © Mike Banks Valentine March 29, 2006

Mike Banks Valentine blogs on privacy issues at:
http://PrivacyNotes.com/privacy_blog/ You can subscribe
to the RSS feed by entering My Yahoo or My MSN at:
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The term tax is very annoying to many ears. We must all accept the fact that there are many things that we do not like to do, but we have no choice in some matters. Tax return preparation is one such thing that any individual who has an income must do it. All individuals who have an earning are liable to pay taxes to the government. Tax payment is done annually and every individual must be prepared well in advance to pay his taxes and pay it in time. Tax return is the official document that lists the amount a person has to pay as taxes. Amount of tax is calculated on the basis of his earnings.

Well, it is understandable that every individual will not have the capacity to accurately calculate taxes. So the best way for an individual out of this mess is to hire services of professional tax return calculation personnel. Once you have actually decided to hire the services of a professional to do your tax return preparation work, make sure that you hire services of the best in the business. After all, you are giving out money to hire the professional and you must get the best worth of your money.

If you personally know of some accountant who will do the work for you, then there is nothing better then this. He can trust him fully to do your work in the best possible manner. Before you hire a professional to do the work for you, make sure that he is fully equipped to do exactly what you want him to do. Just check that the accountant has a professional CPA qualification recognized by regulating authority of the state where you reside. Take care to keep all your paper work that you will need in proper order to be used by the accountant.

It is a good idea to have your tax return preparation calculated well in advance. Tax payment is a seasonal affair and everyone is in huge rush to get tax returns prepared in time to pay the taxes to the government. So, it is very much possible that at the eleventh hour you may find that all CPAs have been booked, and there is no one who can do the work for you. So in this regard getting the work done well in advance will help you in dealing with any situation. You will not face any last minute delay and fill the taxes in time without any hassles.

If you are keen on doing the work on your own, you can do that also. You can do your own tax return preparation with the help of certain software that is specially designed for this purpose. You can find the software online. All you need to do is download it and install the software in your computer. You can sit in the privacy of your home, at your own convenient time and do the work peacefully. So you see that it is only matter of making choices, you just need to ensure that you make the best possible choice under the given situation for calculating your tax return preparation.

Michelle Barkley is a CPA working for Ifrworld.She specializes in Accounting Outsourcing, Bookkeeping Outsourcing and Tax Return Preparation. To know more and to use the services visit http://www.ifrworld.com.