February, 2006 Tax Tip
Are You Ready to Meet With Your (Tax Return) Maker?
Yes, it’s that doom and gloom time again for most of you to get together with your tax professional to have your 2005 returns prepared. This month’s Tax Tip offers some suggestions on how to make the tax preparation process as productive as possible, both in reducing preparation costs and in maximizing the tax savings potential in your returns.
1. Verify data on W-2's, 1099's, 1098's, and other tax information documents you should have received by now. Errors have been known to occur in the amounts, social security numbers and other information reported. If there are any discrepancies between what is reported and what your records show, contact the issuer immediately so that corrected forms can be prepared if required. You need to also advise your preparer. For example, if you made a year-end mortgage payment that is not reflected on the 1098, by telling your preparer he or she can make the appropriate adjustment. The same applies if dividends, interest, and other payments are reported to you that you did not receive until 2006.
2. Organize your data and write legibly! Most preparers provide an organizer to help you assemble your data. An organizer is available on the Links tab at my website, www.rontaxcpa.com. The time you save the preparer will result in a lower fee to you, as most preparers charge by the time spent.
3. Provide the following documents and/or information to your preparer:
- Tax forms, including all original copies of W-2’s, 1099’s, K-1’s; and 1098’s (including student loan interest and higher education tuition and fee amounts)
- IRS/state correspondences sent or received
- Dates and amounts of your estimated tax payments
- Other tax-related documents, including social security statements, home purchase and refinance settlement statements, year-end tax statements from your brokers, vehicle purchase contracts, etc.
- Buy and sell dates, cost, and sales price of each security sold (per IRS requirement). If the sales were through brokerage accounts, these should appear on the tax statements from your brokers
- For each business vehicle provide total, business, and commuting mileage; mileage after August 31st; and operating costs, such as gas, insurance, repairs, etc.
- Home office data, including total and business area square footage, insurance, utilities, and other expenses
- Registration invoice for each of your vehicles
- Dates of birth and social security numbers for you and your dependents
- Profit and Loss Statement and, if available, a Balance Sheet for your proprietorship(s)
- If using a different preparer this year, a copy of your 2004 returns and, if applicable, 2004 depreciation schedules
4. Travel and entertainment expenses require the date, place, amount, nature, names of those present, business connection, and business purpose. Each record must be prepared contemporaneously with the occurrence of the event. Documentary evidence (invoice or receipt) is required to support any lodging or meal and entertainment expenditure of $75 or more
5. Law requires that you have a receipt or other acknowledgment for any gift to charity of $250 or more
6. Remember that an IRA or SEP account is still available for year 2005
7. If you moved to another state during 2005 you need to show all items of income by the source state in which earned. In this regard interest and dividends are generally attributable to the state of residency.
8. Interest you receive from the sale of real property used by the buyer as a residence requires the buyer’s name, address, and social security number;
9. You must have a receipt for any charitable gift of $250 or greater, as well as full details for charitable gifts of property totaling over $500 (including name and address of each charity, description and date of gift, and your best estimate of cost and value of the property);
10. You need a social security number for a dependent child born in 2005
11. You can deduct the larger of sales tax or state income tax paid in 2005. Therefore, if you made large purchases (car, furniture, appliances, etc.), review your records to determine the amount paid for taxable items.
12. Ask lots of questions! You don’t want to overlook any valuable deductions and, for that matter, any properly reportable income. My clients who have worked with me know that I ask many questions to probe for items that might save them money or trouble.
Heeding the above advice will help to ensure that you will file the most accurate and tax efficient return possible. I would welcome the opportunity to work with you on your 2005 returns.
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