Top Ten Tips for Taxes from the IRS and My tips

originally Posted January 5th, 2010

The IRS sent out a list today of their top 10 tips and I wanted to offer some of my own.

IRS

Here are the Internal Revenue Service’s top 10 tips that will help your tax filing process run smoother than ever this year.

1. Start gathering your records Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support an item of income or a deduction you’re taking on your return.
2. Be on the lookout W-2s and 1099s will be coming soon from your employer; you’ll need these to file your tax return.
3. Try e-file When you file electronically, the software will handle the math calculations for you. If you use direct deposit, you will get your refund in about half the time it takes when you file a paper return. E-file is now the way the majority of returns are filed. In fact, last year, 2 out of 3 taxpayers used e-file.
4. Check out Free File If your income is $57,000 or less you may be eligible for free tax preparation software and free electronic filing. The IRS partners with 20 tax software companies to create this free service. Free File is for the cost conscious taxpayer who wants reliable question-and-answer software to help them prepare a return. Visit IRS.gov to learn more.
5. Consider other filing options There are many different options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free face-to-face help at an IRS office or volunteer site. Give yourself time to weigh all the different options and find the one that best suits your needs.
6. Consider Direct Deposit If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check.
7. Visit IRS.gov again and again The official IRS Web site is a great place to find everything you’ll need to file your tax return: forms, tips, answers to frequently asked questions and updates on tax law changes.
8. Remember this number: 17 Check out Publication 17, Your Federal Income Tax on IRS.gov. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.
9. Review! Review! Review! Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.
10. Don’t panic! If you run into a problem, remember the IRS is here to help. Try IRS.gov or call our customer service number at 800-829-1040.

 

Mine

1. Most importantly, unless you qualify for telefile, get a professional.  H&R Block lowered their prices this year and they came out with a wonderful product call H&R Block At Home.  It allows you to do your return inexpensively, then a tax pro like me checks and corrects any mistakes, and then you file it yourself.  It also comes with the guarantee to pay penalties and interest and provide you with audit support and since audits are on the rise, it only makes sense to use a professional.
2. Don’t start filing until you know you have all of your W-2s, 1099s, Mortgage Interest statements, bill of sale if you bought a house, release of child (8332) if needed, all of your work related receipts, 1098-T for a school loan, etc…
3. If you own a business – SORT YOUR RECEIPTS.  I don’t mind doing the adding and sorting with you either for a small fee if it is too much to handle.  I would prefer to have everything sorted by category receipt it is with maybe a pile of “dunnos” and then further break them down by quarter (1. Jan, Feb, Mar, 2. April, May, June 3. July, Aug, Sept, 4. Oct, Nov, Dec) so if anything needs to be depreciated then we can easily tell how it should be done.
4. If you think you want to do your own taxes, take an H&R Block Income Tax course.  It is 2 weeks long either in the morning or evening. 
5. KEEP ACCURATE RECORDS.  Your miles logged in your car for work, miles logged for charity work, accurate accounts for everything is important.  The IRS requires the tax payer to “keep an accurate and reasonable records of financial statements”.  You are not allowed to “forget” receipts to deduct off of your business income (if you own a business) where it might possibly help you with Earned Income Credit.  Again, AUDITS ARE ON THE RISE.  They are targeting those who cheat on the Earned Income Credit.
6. Drop off your return and save yourself sometime.  You can step into H&R Block, fill out a little form, leave, and come back after we have input all of the documents into the system.  Ask you some questions over the phone or in the office and then you can approve the return online or stop by, sign papers, and be done.  You don’t have to wait in line for a couple hours.
7. Try not to bring your kids.  I love kids but it isn’t fair to you, them, me, or other clients in the office to make your kids sit and wait 1-2 hours in what must be childhood hell.  Tax offices are not “fun” but they can be rewarding when you go home with a refund.
8. Bring something to drink.  It can take 1-2 hours.  H&R Block is now serving coffee to anyone that comes in but if you don’t like coffee, you can bring in something else.  We try our best to make you cozy.
9. Be calm.  We don’t work for the IRS.  We work for you.  If we give you news you didn’t want to hear, it isn’t our fault.  Every year, people forget that they don’t claim their kids that year, or their boss failed to take out taxes from their paychecks, they forget to pay taxes on disbursements from retirement accounts, etc.   Our job is to try to get your tax liability as low as we LEGALLY can so no one gets in trouble and it happens as quickly and accurately as possible.
10. Don’t believe your friends and family unless they do taxes for a living.  Every year we have to tell people they are getting back less than what they thought because someone in their circle told them, “the less you make, the more you get back.”  Well, that isn’t how it works.  Last year, a cousin of mine was told he would need to pay about $2000 in taxes by a friend of his so he talked to me for some help. 

“Does your friend do taxes?”
“No, he looked it up online.”
“Let me see your forms…. LOL… hold on…”
30 minutes later I had his taxes done and he only owed about $200.  His friend failed to take his standard exemption, work expenses, calculate, his self-employment tax, and calculate his earned income credit as well as his stimulus check he didn’t receive.

Legal Expenses as Tax Deductions

I am always getting asked, “Can I deduct my legal fees on my taxes?”  So let me explain the law on that.  Legal fees related to producing or collecting taxable income or getting tax advice are deductible.

Deductible Legal Expenses include:

• The cost of either doing or keeping a job, such as expenses paid to defend against criminal charges arising from the taxpayer’s job.  This is certainly so for legal fees for a small business to keep running.
• The cost of tax advice related to a divorce if the bill specifies how much is for tax advice and it is determined in a reasonable way.  Ask for an itemized bill.
• The cost of collecting taxable alimony.  The key is that the legal fees paid must have been for something that had a direct effect on taxable income.   Legal fees paid to go after Child support is not deductible because it isn’t a taxable source of income.
• Fees and Court costs paid for unlawful discrimination, a claim against the US Government, or a claim made under §1862(b)(3)(A) of the Social Security Act, are deductible as an adjustment to income rather than as a miscellaneous itemized deduction.  The deduction is limited to the amount included in gross income for that claim.  All other legal fees for this type of claim are deductible as a miscellaneous itemized deduction subject to the 2% AGI limitation.

NON-deductible Legal Expenses include:

• Custody of children.
• Breach of promise to marry.
• Civil or criminal charges resulting from a personal relationship.
• Damages for personal injury.
• preparation, defense, or perfection of a title to real property (Land Deeds and houses)
• preparation of a will.
• Property claims or property settlement in a divorce.

If you aren’t sure if the fees you have paid are deductible, shoot me an email and I will follow-up for you.