Tag: tax documents

Posted on by Jan Roberg

What You Need to File Your Taxes

tax paperwork

Sometimes, the hardest part about filing your taxes is getting the paperwork together.

 

 

Whether you’re hiring a professional or preparing your own return, make sure you have all of your paperwork together before you start.  If you’re expecting a refund, you’re probably anxious to get everything together so that you can file as soon as possible.  For those of you who expect to pay, you’re probably not too thrilled about it.  I know I never am anyway.

 

Here’s a list of some of the more common documents associated with filing.  Not every person will have every form on this list, but hopefully this will help jog your memory so that you don’t forget something you need.

  • W-2 forms – that’s your statement of wages, you’ll need a W-2 for each job you held
  • 1099 forms – there are several types:
    • 1099-INT for interest
    • 1099-DIV for dividends
    • 1099-B for sale of securities  (some companies, like Edward Jones or Raymond James, will send out a combined form that has your 1099-INT, 1099-DIV and 1099-B all in one statement)
    • 1099-R for annuities, pensions and other retirement plan withdrawals
    • 1099-G is for government payments like a state tax refund or unemployment benefits
    • 1099 MISC is for miscellaneous income, like commissions or non-employee compensation
    • SSA-1099 is for Social Security income — a note about the SSA 1099 form, it has to be the most frequently lost form on the planet.  It’s usually the first one mailed out and I think it kind of gets lost in the shuffle.  If you receive Social Security benefits, or are assisting someone who does, please make sure that this form is included with the other tax documents.   For some people, it’s not taxable—but you need to include the figures from this form when preparing your taxes to determine if it is taxable or not.
    • W-2G is for gambling income.  If the Social Security form is the most frequently lost form, the W2-G comes in second.    If you’ve received one of these statements, you need to include it on your tax return.  If you don’t, you will get a letter from the IRS.   (Gambling losses, up to the amount of winnings, can be deducted on your Schedule A.
  • 1098 tells how much interest you paid on your mortgage – you want this because it can be used as a deduction
  • 1098-E shows interest paid on a student loan – ditto!
  • 1098-T shows the amount of tuition paid at an educational institution (you need this to claim those college tax credits.)  Here’s the kicker, if you’re the parent paying the tuition, you won’t get the form, your student child will.  You may need to work at getting your student to download this of the student portal.

 

If you sold stocks, mutual funds, or real estate, you’ll want to have your basis information on hand.  (Basis is what you paid for the property.  Many investment firms include the information right on your 1099B, but some don’t, especially if you sold old stocks.)  Make sure you have this information ready before you file – it can save you lots of money!

 

If you purchased or sold a home this year, you’ll want to have a copy of your settlement statement.  Depending upon your situation, there may be valuable deductions hidden in those statements.

 

If you are a member of a partnership, joint venture, S corporation, estate or trust, you will also need a copy of the Schedule K-1.  Those forms aren’t required to be completed until March 15th, so you may not be able to file your personal return before then.   It’s a good idea to make your tax appointment once you have all of your other forms together.  The K-1 information can be added at a later date.

 

And of course, you’ll want to have all the documents to support your deductions like real estate taxes, charitable contributions or deductible business expenses.

 

It’s always a good idea to have a copy of your last year’s return with you also.  Sometimes you might have items that can carry forward into the next year.  If you don’t provide you preparer with your old return, you’ll miss those deductions and credits.

 

If you save all the mail that says “Important Tax Information Enclosed”, you’re onto a good start.  Having all of your tax paperwork together before you start your tax return is one of the best ways to avoid getting a letter from the IRS later.

Posted on by Jan Roberg

Bad Calls

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Photo by Otto Greule Jr at Getty Images

Let me start with full disclosure:  I am a card carrying member of Cardinal Nation.    As I write this I am sitting on the sofa wearing my St. Louis Cardinal’s jersey hoping to type this out before the first pitch of the game.   So forgive me if it’s considered blasphemy but, the infield fly rule called against Atlanta during the 2012 Wild Card Play-Off was a bad call.  (http://www.nesn.com/2012/10/infield-fly-rule-prompts-criticism-of-umpires-call-for-instant-replay-in-mlb.html)  Hopefully we would have still beaten the Atlanta Braves anyway, but we’ll never know.

 

Another bad call occurred in week 3 of the 2012 NFL season featuring the Green Bay Packers and Seattle Seahawks—a Hail Mary pass was thrown and members of both teams caught the ball while the replacement officials gave conflicting rulings. (http://bleacherreport.com/articles/1346952-packers-vs-seahawks-the-replacement-officials-finally-broke-the-nfl)  That was a horrible call.

 

Sometimes tax preparers make a bad call when they do your taxes.  We’re not perfect either.  The other day I got a phone call from a woman who needed help.  The IRS was going to garnish her paycheck and she needed some help stopping it.  After I got the immediate problem taken care of, I asked her some questions about her tax return.  After getting enough details, I realized that the woman’s previous preparer had missed a pretty major deduction.  I recommended that she amend her return and have it done correctly, it would seriously help with her tax debt.  You see, when you make a bad call on your taxes, unlike some of the referee calls in sports, you have a three year period to make it right by amending your return.

 

The woman asked me what I’d charge to fix her taxes and she was a little shocked by the price.  She told me that her other preparer at “Brand X Tax Company” had only charged her half that much so she wouldn’t hire me.  Ahem.  I used to work for “Brand X”.  I know their billing practices and they charge by the form.  Had the preparer done all the forms that this woman needed to correctly file her tax return, the price would have been much closer to, if not more than, what I was charging.  But besides that, we’re talking about reducing her tax burden by a few thousand dollars.  Really I’m not all that expensive.  So now who’s making the bad call?

 

I remember a few years back, an elderly woman came into my office with an IRS letter.  It said that she owed about $10,000 and she didn’t know what to do about it.  As I looked at the letter and then at her return, I realized that she had a bunch of stock transactions that hadn’t been reported on her tax return.  Although the IRS said that she owed $10,000, when I checked things out, she really didn’t owe anything at all, she just needed to have her tax return done correctly.

 

When I told her the cost, she too was shocked, “But my other lady only charged me $20 to do my taxes,” she said.  “But your $20 tax return is going to cost you $10,000,” I replied.  She was smart, and now her taxes are done correctly.

 

Here’s the big hint—if you get a document that says “Important Tax Document”, you probably need to report something from that paper on your tax return.  If you give your preparer that piece of paper and she ignores it, that’s a red flag that something’s wrong.  Shame on her.  If you don’t give that paper to your preparer, then it’s shame on you.

 

Preparers can make mistakes.  (Even me, that’s why I have my staff review my returns just like I review theirs.  We’re all human.)  If you get an IRS letter, the first thing to do is to contact your tax preparer and give her a chance to fix it.  She might not have even made a mistake; sometimes it’s an IRS mistake.  They’re human too—(some of them.)  But if your preparer can’t or won’t help you when there’s a problem, it’s time to make the right call and move on.

Posted on by Jan Roberg

Checklist of Tax Filing Documents

tax documents need for filing

It helps to have all of your tax paperwork together before you start preparing your return.

 

It’s that time of the year again when we get to file our tax returns. If you’re expecting a refund, you’re probably anxious to get all your paperwork together so that you can file. For those of you who expect to pay, you’re probably not too thrilled about it. Whether you’re hiring a professional or preparing your own return, make sure you have all of your paperwork together before you start.

 

Here’s a list of some of the more common documents associated with filing. Not every person will have every form, but this list should just help jog your memory so that you don’t forget something you need. The list:

  • W-2 wage and income statement – that’s your statement of wages, you’ll need a W-2 for each job you held. For lots of people, this is the only thing you need for filing your return. Make sure you have all of your W2s though; the most common problem is that Christmas season job part-time you had last year where you got paid in January of this year. Make sure you get all of your W2s before filing to avoid an IRS letter.
  • W-2G is for gambling income. The W2G is the second most frequently lost tax form (only the Social Security SSA-1099 beats it.) If you’ve received one of these statements, you need to include it on your tax return. If you don’t, you will get a letter from the IRS. Gambling losses, up to the amount of winnings, can be deducted on your Schedule A. The catch is, you have to report it. You can’t just leave it off if it’s deductible.
  • You need all of your 1099 forms – there are several types:
    • 1099-INT for interest – you get this from your bank. If you earned less than $10 in interest, you probably will not get one
    • 1099-DIV for dividends – you’ll get this from stocks you own. Sometimes they’ll come from a broker (like Edward Jones) and sometimes they’ll come straight from the stock issuing company (like Ameren).
    • 1099-B for sale of securities – and this is going to be different this year. The laws about reporting stock sales have changed so don’t be surprised if your report is looking a little different. Some companies (like Edward Jones) send out a combined form that has your 1099-INT, 1099-DIV and 1099-B all in one statement and it can be 12 or 20 pages long, or longer. Be sure to give all of the pages to your tax preparer – if you don’t, you’re cheating yourself out of your own money.
    • 1099-R for annuities, pensions and other retirement plan withdrawals—once again, even if your pension isn’t taxable, you need to report it on your tax return.
    • 1099-G is for government payments like a state tax refund or unemployment benefits. If you live in Missouri, the state doesn’t send you a 1099G for your refund anymore; you have to go online to get it. Here’s the website: 1099G
    • 1099 MISC is for miscellaneous income, like commissions or non-employee compensation. If you have income shown in box 7, you’ll be required to file a Schedule C for self employment income.
    • SSA-1099 is for Social Security income – a note about the SSA 1099 form: it has to be the most frequently lost form on the planet. It’s usually the first one mailed out and I think it kind of gets lost in the shuffle. If you receive Social Security benefits, or are assisting someone who does, please make sure that this form is included with the other tax documents. For some people, it’s not taxable – but you need to include the figures from this form when preparing your taxes to determine if it is taxable or not. You get the 1099SSA form at about the same time that you get the information about what your benefits will be for the next year. You need the 1099SSA to do your taxes, not the future benefits statement.
  • 1098 tells how much interest you paid on your mortgage—important for itemizing deductions
  • 1098-E shows interest paid on a student loan—so you can claim a student loan interest deduction
  • 1098-T shows the amount of tuition paid at an educational institution–you need this to claim those college tax credits
  • If you purchased a new home this year, you’ll want to have a copy of your settlement statement—there are little things that might help with your deductions
  • K-1 forms – if you are a member of a partnership, joint venture, S corporation, estate or trust. Those forms aren’t required to be completed until March 15th (partnerships not until April 15th) so you may not be able to file your personal return before then. It’s a good idea to make your tax appointment once you have all of your other forms together. The K-1 information can be added at a later date.

 

And of course, you’ll want to have all the documents to support your deductions like real estate taxes, charitable contributions or deductible business expenses.

 

It’s a good idea to have a copy of last year’s return with you also.

 

Don’t forget to bring the social security cards for you and your children to your tax appointment.

 

One last thing—have a blank check so that you can use the routing and account numbers for direct depositing your refund.

Once you have everything together, you’re ready to go!

 

Posted on by Jan Roberg

Can You Claim a Home Office Deduction?

 For many people who own their own business, claiming a home office is a great tax deduction.  Some people who work for employers can also claim a home office, but they must also meet the requirement that it’s for the benefit of the employer. What about you?  Should a home office deduction be on your tax return this year?

 The first criteria for a home office is “regular and exclusive”.  This basically means that you have a defined space that is only used for business.  It doesn’t mean you have to have four walls, your defined space can be a section of another room.  For example, let’s say you have a desk in your bedroom that you do your office work out of.  You make your business calls there, the computer is there, it’s your business headquarters.  Your bedroom can’t be your home office, but that corner of your bedroom certainly is.  Many people think that since they don’t have a dedicated room to call an office that the home office deduction isn’t available to them.  That’s not true.  Let’s say that this guy’s bedroom is 12×14 feet.  His office space is basically his desk, his chair and a file cabinet that takes up about 5×8 feet.  His home office space is 40 square feet.  Granted, that’s not much of an office, but it’s still going to help reduce his taxes and that’s the whole point isn’t it?.

 Let’s go back to the “exclusive” use idea again.  Let’s say you’re using your kitchen table for you office.  (To be honest, it’s my favorite place to work.)  The problem is, because its the kitchen table, it doesn’t qualify as exclusive use.  Come five o’clock (at least at my house) I clean the table off and get ready for dinner.  I actually have another spot in the house that I do claim as my home office, and I really do work up there.  It doesn’t mean I never work at the kitchen table, it just means that I don’t claim the kitchen as my home office. 

 The concept of office space as a function of business is changing.  How many people do you know would say their office is at Starbucks?  The cab of their truck?  Wherever their Blackberry is?  (The IRS doesn’t yet allow Starbucks receipts to be claimed as office rent expense, but I wish they did.)  For many people, these places really are their offices, but they still need a place where they can regularly store paperwork and/or product and receive mail. Starbucks may seam like your main office, but I would argue that you could also claim a home office deduction if you made space for it. 

 Now if you actually meet clients in your home, the home office deduction is almost a gimme.  Also, if your home has a separate structure where you do business, that’s pretty much guaranteed. Qualified daycare providers have special rules for claiming the home office deduction, but they definitely are able to claim a portion of the home expenses against their business income. 

 So what home office claims are going to get denied?  Well, one example that didn’t work was a woman who had a party plan business.  Every week she was hosting parties in her home for 10-20 couples selling her product.  She had claimed her whole house as a home office business deduction because the guests had full run of her house during the weekly parties.  Right about now you may be wondering, “what the heck was she selling anyway?”  Pretty mundane stuff actually.  If you’re selling a home party product like Avon, or Pampered Chef, you can claim a home office deduction for the storage of your product.  You can also claim office space for your administrative duties.  I would even go so far as to say you could claim an area of your home if you used it exclusively for your home parties on a regular basis like this woman did.  But, claiming your whole house (including your kid’s bedrooms, your bedroom, your kitchen, your personal bathroom) …that’s not going to fly. 

 Many people are afraid that a home office deduction guarantees an audit.  That’s not the case.  But, there are trip points that will make the IRS look closer at your return like claiming the whole house in the example above. Be sure to have a professional prepare, or at least review, your return when you claim a home office.  The money you spend up front will be well worth it in the time and taxes saved.

Posted on by Jan Roberg

Checkpoint, How’s Your Withholding?

It's a good idea to just make sure that you are withholding enough tax from your paycheck.

It’s a good idea to just make sure that you are withholding enough tax from your paycheck.

 

I recently read an online forum where a fellow wanted to sue his employer for not properly withholding the man’s income taxes  from his wages.  While I felt sorry for the man and his looming tax debt, given some of the information he posted, I wasn’t convinced that the employer was at fault.  But the tax code and the forms are all pretty confusing, so how do you know that you are withholding correctly?  Fortunately, there is help.

 

First and foremost, if nothing has changed about your job or life situation and you’re happy with your refund/balance due situation, this isn’t for you.  If everything is fine, why change?  But–if you owed too much last April, or you had a job or lifestyle change, then you really should do a mid-year evaluation to make sure that your withholding is on track.  It’s a whole lot easier to change your withholding now than it is to make adjustments in December or after the year is already over.

 

What you need to do is have a copy of your latest pay stub and your last tax return handy.  You’ll need both to answer the questions in the calculator.  Then you’re going to click on the link to the IRS withholding calculator.

 

Now I’m going to be honest, the first time I looked at this I went, “Oh gee, who’d want to bother with this?”  But seriously, it’s the best program for figuring out where you stand with your taxes.  For most situations, I like it better than some of the fancy professional tax projection programs I’ve used.  Most importantly, you don’t need any special training to use it.  Just answer all the questions.  Sometimes you may have to guess, but do your best.  You really do need to have your latest pay stub and last tax return to do this though.  If you’re just estimating, it’s not going to be helpful.

 

The program will tell you, based on what’s actually been taken out of your check, how much your refund or balance due will be.  And, if you are expected to owe, it tells you how to change your withholding so as not have a balance due.

 

So let’s say you ran the program and it does recommend that you change your withholding.  What next?  That’s easy, take the information to your employer (or the payroll department) and fill out a new W4 form.  Unlike some other paperwork that can only be completed annually, you are allowed to change your W4 any time during the year.

 

So about that guy who wants to sue his employer?  I’ll leave that up to the courts.   As for me, I’d rather catch a problem before it gets out of hand, and the IRS withholding calculator lets me do that.

Posted on by Jan Roberg

Avoiding an Audit

How to Avoid an Audit

Everybody wants to avoid getting audited by the IRS.

 

Updated July 2016

Every year people ask me, “What can I do to prevent being audited by the IRS?” The honest answer is, “Absolutely nothing.” Because in fact, everyone is audited every year. You just don’t know it. Every year, your tax return is run through a computerized audit. First there is the search for missing documents—such as an unfiled W2 form or interest statement.  This is called the document matching program.

 

What I’m saying is that every year, your tax return is getting audited by a computer.  You just don’t know because you don’t hear anything from the IRS unless there’s a problem.

 

Now it used to be that when a return got tagged by the computer,  a human being would take a look at it.  A return that got snagged by the computer might still not be audited if it made sense to the human. If the human still had a question, then an audit letter went out.  Nowadays, there isn’t much human verification, so a lot more letters get sent for returns that normally wouldn’t seem to be a problem.  That’s why you don’t just want to automatically pay the IRS if you get a letter – there’s been no double check, you might not really owe.

 

Even people who don’t file tax returns are audited. The IRS runs the documents about your income even if you don’t file a return. If they determine that you’ve earned enough income to file, and you owe them money, rest assured, you’ll get a letter about it.  If the IRS figures you should be receiving a refund – rest assured, you won’t hear a thing!

 

Another audit device the IRS uses is called the DIF score, it’s a process where the IRS basically checks “what’s normal” for expenses for taxpayers in various income brackets.  The IRS tracks data for all sorts of things, if your “DIF” score is out of line for your profession, that’s also likely to trigger an audit.

 

Now I bet you’re wondering, “How do I get my hands on those DIF scores Jan mentioned so that I can keep my return from being pulled for audit?” Yeah, I’d like a copy of those too. Unfortunately, the IRS doesn’t publish them. That would be like showing your hand in a poker game.  Every tax preparer in the country would like to know how those DIF scores are arrived at.

 

In the meantime, your best defense for an audit is hanging on to your records. Now that tax season is over, make sure that you’ve put all those papers someplace safe. Hopefully, you won’t need them.