It's tax time. Are you ready to file your tax returns? Do you have all your documentation ready? Have you decided on a do-it-yourself approach or are you going to a professional preparer? Are you sure you know what you're doing? Are you Efiling for faster results? It's not rocket science. Or is it?
It doesn't matter if you have decided to take the do-it-yourself approach or you are going to opt for a professional preparer, there are some things that you have to do yourself with regard to your tax preparation. First of all, you have to make sure you have all of the official documentation you need to prepare a complete and accurate return. You will need W-2's from employers, 1099's from non-employee compensation if you are self-employed, 1099's from banks and brokerages, unemployment and pension statements and statements related to any other taxable income you receive.
If you are going to itemize deductions you need mortgage interest statements, real estate tax payment documentation, charitable contribution receipts for cash donations and detailed data and receipts for non-cash contributions. Medical expenses, gambling expenses and employee business expenses can be documented on Schedule A as well.
There are schedules for capital gains that relate to sales as well as schedules that relate to rental property income and pass through income from S-corps and Partnerships.
Those who are self-employed will need to complete a Schedule C. 1099 non-employee compensation income will be documented on this form, as well as any expenses related to your business. It is important to make a realistic determination as to the classification of your business as a hobby or a business. A hobby is not filed on a Schedule C and a hobby cannot generate a deductible loss.
It is helpful if you are preparing tax data for a business to have your records for all income and expenses in a proper business format. Software such as Quickbooks, Quicken, and Peachtree can be very helpful when used properly. Reconciliation of the checking accounts on a monthly basis makes tax time analysis much faster and easier.
It is important not to overlook the credits that some taxpayers can take advantage of such as the Earned Income Tax Credit, Educations Credits and the First Time HomeBuyer Credit. Be sure to pay close attention to the section related to credits and the related worksheets. Due diligence is required. This means that sometimes when all the questions are answered on the worksheets you may get different eligibility results than you expect. So preparation of the worksheets is very important especially if you are tackling your own returns.
If you are preparing your own returns, it is a very good idea to use tax software such as Turbo Tax. It guides you through the return in a user friendly format.
The above is some but not all of the considerations related to preparation of your tax returns. It's not rocket science, but it can seem like it if you're not properly prepared for the job.
Any U.S. tax advice contained in this electronic communication was not intended or written to be used, nor can be used, by any recipient of this communication for the purpose of avoiding penalties that might be imposed pursuant to the Internal Revenue Code or U.S. Treasury Regulations, or any other state or local law or regulation.
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