Tuesday, September 4, 2007

How To Make Tax Time Less Taxing

Tax time is too often a cause of worry and undue stress. Whether or not you prepare your own return, if you fill out an extended form with attached schedules (that is, other than the short form), careful documentation of your records will make filing much easier.
Reasons for Being Organized
Well-organized records are crucial in case you are audited. By systemically collecting and carefully storing expenses and payments, you may find that you can deduct more than you thought possible previously. Most importantly, careful recording gets you thinking about, and therefore puts you more in control of, your entire financial life.
What to Organize
Tax returns cover any major aspect of your financial life during a calendar year. These include non-reimbursed medical and dental expenses, home purchase/sale, child-care and alimony payments. Sales of stocks and bonds need to be noted as well, including date of sale, number of shares, sale price and, what is most difficult for most people, the date and price of the original purchase, the last of which is required to determine profit or loss.
Organizing Back-Up Documentation for Deductions
Tax returns allow for a wide variety of deductions. You will want to itemize deductions if your total itemized deductions are more than the standard deduction to which you are otherwise entitled. Currently, the standard deduction for a single person or married person filing separately is $5,150; for married persons filing jointly, it’s $10,300 and for head of household, it’s $7,550. Consider filling out a Schedule A (Form 1040) for deductions if any of the following apply to you: if you adopted a child, if you paid interest and taxes on your home; if you had large uninsured casualty or theft losses, if you made large contributions to qualified charities, if you have educational expenses that maintain or improve skills required in your present job, if you paid union dues and fees, if you bought professional books and magazines, if you paid fees for having a tax return prepared, and if you paid fees for renting a safe deposit box to store investment-related material.
How to Organize
Everyone has a different way of handling personal financial information. The most basic is to put all receipts and financial documentation in a box or bag and let is accumulate throughout the year. This method, although easy to do for twelve months, results in a jumble of papers that need to be sorted when it comes time for tax preparation. A more efficient way to store documents is to consider first any items that you might want to claim as deductions. You can go online to http://www.irs.gov/publications or http://www.irs.gov/taxtopics to review legitimate deductions. Make a list of what applies to you. For example, did you buy or sell a home? Do you pay mortgage interest on your home? Do you have dependents? Then figure out the best system for you to sort the documents during the year. For example, you might want to purchase an accordion file with each tab corresponding to a deduction or expense category. Then put the receipts or relevant documents into the appropriately-tabbed folders in the file as you accumulate them. When it comes to tax time, pull out the receipts, add them up, clip them together and store them in that year’s tax box. The accordion file is then empty and ready for the new year. Alternatively you can get colored folders and color-code the categories from your master list of expenses and deductions that apply to you personally. Thinking about deductions may well save you money. Getting organized will economize your time and minimize your tax preparation stress. The above information is provided as a courtesy of Omni Financial, a company started by a former Staff Sergeant that has been exclusively serving the borrowing needs of America’s military members for over 55 years, and is intended for educational purposes only. This article, in whole or in part, is not intended to and does not constitute legal or financial counseling.

Source: Militaryloans.com

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