Getting Ready For April's Tax Season
April is right around the corner, and with it
, tax season. It is important that you begin to prepare now, so that you are ready when it is time to file your papers.
There are certain things that you must do in order to prepare. The first thing is to collect your 1099s, and your W-2s.
Employers typically send W-2 wage information to their employees via regular mail by the end of January. About this same time, investment firms will send out 1099s as well, detailing any stock or bond sales you have transacted over the course of the past year.
Do yourself a favor: review these documents closely! Make sure the withholding amounts are accurate.
Also make certain that the gross wages reported on the W-2 form match what you've earned. If for some reason there is a discrepancy, contact your human resources or payroll department as soon as possible, and make sure they re-issue you a corrected form.
Next, collect copies of bank or brokerage statements. Suppose your accountant is reviewing your checkbook, and notes that in June of last year you deposited $1,000.
He or she might make the assumption that the deposit was earned income (as opposed to a gift you received from a relative). But by having your monthly statements available you'll be able to show the accountant that indeed the transaction was a one-time gift, and shouldn't be taxed.
Step three is to set aside your IRA contribution proofs. In 2010, taxpayers under 50 years of age are allowed to contribute $5,000 per person to their IRAs.
Those over 50 may contribute $6,000. With that in mind, taxpayers should set aside proofs of this contribution (preferably in the form of a cancelled check or brokerage statements).
In 2010, single taxpayers earning up to $56,000 and married taxpayers filing jointly earning up to $89,000 can deduct the entire $5,000 contribution. Beyond that, partial deductions are permitted for individuals earning between $56,000 and $66,000, and married couples earning between $89,000 and $109,000.
Be sure to provide your accountant with the social security number of any children that you had or have adopted over the past year. If you earn under $75,000 as a single taxpayer or under $110,000 as a married taxpayer (married filing jointly), you are eligible for a $1,000 tax credit for every dependent child that you support under the age of 17.
If you purchased an item (such as a uniform) that you need for your job and your employer does not reimburse you for that expense, then the item is deductible. In addition, if you are self-employed, many items you use to conduct or promote your business may be deductible as well.
Both the federal government and the IRS encourage individuals and corporations to make donations to charities by offering deductions for donated goods. However, receipts detailing the items donated must be saved and included with your tax return.
And while formal pictures are not required, they are highly recommended because they will substantiate the deduction if it is challenged by the IRS during an audit. While your mortgage company will provide you with a 1099 detailing the interest you've paid on your loan throughout the year (which is deductible), saving individual mortgage receipts also makes sense.
They can be used to reconcile the year-end 1099 (in other words to check its accuracy) and provide your accountant with some sense of the size of interest deductions that might be realized in the coming year. If you purchased a hybrid vehicle after January 1, 2010, you may qualify for a tax credit ranging from $650 to $3,400, depending on the vehicle.
New Electric vehicles purchased after December 31 2009 will come with a tax credit between $2,500 and $7,500 depending on the vehicle and the phase out calculation after the first 250,000 vehicles. If you've purchased certain energy efficient items for your home in 2010, including insulation, hot water heaters, furnaces, boilers or thermostats you may qualify for up to another $1,500 in tax credits.
In addition, in 2010 there is a tax credit for energy systems purchased such as solar, wind, and fuel cells. The credits are based on 30% of the cost of the system.
Also, no cap exists on the amount of credit available except in the case of fuel cell property. With this information, you can be sure that you will be as ready as possible when tax day rolls around!
by: Jack Landry
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