If you’re like most taxpayers, you find yourself with an ominous stack of “homework” around tax time!
Unfortunately, the job of pulling together the records for your tax appointment is never easy, but the effort usually pays off when it comes to the extra tax money you save! When you arrive at your appointment fully prepared, you’ll have more time to:
- Consider every possible legal deduction;
- Better evaluate your options for reporting income and deductions to choose those best suited to your situation;
- Explore current law changes that affect your tax status;
- Talk about possible law changes and discuss tax planning alternatives that could reduce your future tax liability.
Choosing Your Best Alternatives
The tax law allows a variety of methods for handling income and deductions on your return. Choices made at the time you prepare your return often affect not only the current year, but later year returns as well. When you’re fully prepared for your appointment, you will have more time to explore all avenues available for lowering your taxes.
For example, the law allows choices in transactions such as:
Sales of property
If you’re receiving payments on a sales contract over a period of years, you are sometimes able to choose between reporting the whole gain in the year you sell or over a period of time, as you receive payments from the buyer.
Depreciation
You’re able to deduct the cost of your investment in certain business property using different methods. You can either depreciate the cost over a number of years, or in certain cases, you can deduct them all in one year.
Higher Education Expenses
If you are paying college expenses for yourself, your spouse, or your dependent(s), you may qualify for a tax benefit of either an above-the-line tax deduction or a tax credit.
Where to Begin?
Ideally, preparation for your tax appointment should begin in January of the tax year with which you’re working. Right after the New Year, set up a safe storage location—a file drawer, a cupboard, a safe, etc.
As you receive pertinent records, file them right away, before they’re forgotten or lost. By making the practice a habit, you’ll find your job a lot easier when your actual appointment date rolls around.
Other general suggestions to consider for your appointment preparation include:
Segregate your records according to income and expense categories. For instance, file medical expense receipts in an envelope or folder, interest payments in another, charitable donations in a third, etc. If you receive an organizer or questionnaire to complete before your appointment, make certain you fill out every section that applies to you. (Important: Read all explanations and follow instructions carefully to be sure you don’t miss important data. Organizers are designed to remind you of transactions you may miss otherwise.)
Keep your annual income statements (e.g., W-2s from employers, 1099s from banks, stockbrokers, etc., and K-1s from partnerships, etc.) separate from your other documents. Be sure to take these documents to your appointment, including the instructions for K-1s!
Write down questions you may have so you don’t forget to ask them at the appointment.
Review last year’s return. Compare your income on that return to the income for the current year. For instance, a dividend from ABC stock on your prior-year return may remind you that you sold ABC this year and need to report the sale.
Make certain that you have social security numbers for all your dependents. The IRS checks these carefully and can deny deductions for returns filed without them.
Compare deductions from last year with your records for this year. Did you forget anything.
Collect any other documents and financial papers that you’re puzzled about. Prepare to bring these to your appointment so you can ask about them.
Being prepared and making sure you have the basic details of your tax return covered will allow your tax preparer to spend more time on what matters most – making sure you don’t pay more tax than you are required to pay.
Eric Levenhagen is the managing member of ProWise Tax & Accounting in Mason City. He is a CPA and the only Certified Tax Coach in the state of Iowa. He can be reached at (641) 424-3990. More information about ProWise Tax & Accounting can be found at www.IowaTaxPlanner.com.
