When you sign your 1040 form, you agree to abide by the tax law making you responsible for paying your taxes, regardless of who prepares your return. If there are errors, innocent or otherwise, the Internal Revenue Service looks for the taxpayer, not the person who filled out the forms.
Preparation is key so get your information together before you start and if you need help, ask a qualified tax adviser. And do remember that you have to pay your tax – plus any payment on account due – it’s not just about getting the form in.
In case you don’t feel like flipping through countless pages of government instructions on what constitutes a “complete and accurate” return, you may want to check out several common problem areas at a glance and the types of records normally required.
Use the following checklist for better tax preparation on your income tax return. Not every category will apply to you. Just pick those that do and make sure you have that information available.
Tax Preparation Checklist:
1. Itemized deductions: Receipts, receipts, who’s got the receipts? If you’re planning on itemizing your deductions, you need the numbers to calculate your deductions and to prove your claims in case you’re audited.
2. Medical expenses: Keep all your receipts, and make sure you get receipts for all services that you receive during the year, including cab fares to and from the doctor’s office. The list of allowable medical deductions is long and fairly inclusive, and as healthcare costs continue to rise faster than most people’s salaries, more and more people will find they can take a medical deduction.
3. Mortgage interest payments: You should receive these payments, which are documented on Form 1098, from the bank that holds your mortgage.
4. Real estate taxes: Keep a copy of your real estate tax bill, and either the canceled checks, a receipt from your city or town, or a line item on your Form 1098 (if your mortgage company pays your taxes for you).
5. Personal property taxes: Keep a receipt for your excise tax bill.
6. State and local income taxes: Hang on to copies of your canceled checks if your bank still gives you back your checks. Otherwise, when the IRS wants proof, you’ll have to pay for copies from your bank.
7. Charitable deductions: For donations in excess of $250 (per donation), keep a written receipt or letter from the charity that states the amount and nature of your donation.
8. Casualty or theft losses: You just never know when your number will come up in the burglar lottery, or you drop your diamond ring down the garbage disposal. If you don’t have your receipts, don’t despair, though; you have other ways to prove this deduction.
9. Unreimbursed job expenses, safe deposit box fees, tax preparation fees, and other miscellaneous itemized deductions: Once again, keeping your receipts makes these deductions easy to prove. You may be rejoicing to find that you don’t have enough deductions to itemize in 2007, so you can trash all your receipts now. And, you may also be assuming that the same will be true in 2008. Keep in mind, though, that your finances, and your tax situation, can do funny things from year to year; be sure to hang on to your 2008 receipts so that you keep all your deduction options open down the road.
10. Dependent expenses: If you plan to claim someone other than your qualifying child as a dependent, you need to be able to prove (if you’re audited) that you provided more than 50 percent of that person’s total support. The length of time that you provide the support doesn’t mean anything — it’s the total cost that matters. So be ready to show how much you paid for your dependent’s lodging, food, clothes, healthcare, transportation, and any other essential support stuff.
11. Car expenses: If, for the business use of your car, you choose to deduct the actual expenses rather than the standard mileage rate (which is 44.5 cents per mile for 2008), you need to be able to show the cost of the car and when you started using it for business. You also must record your business miles, your total miles, and your expenses, such as insurance, gas, and maintenance. You need a combination of a log and written receipts, of course!
12. Home expenses: If you own your home, you not only need to keep track of your mortgage and real estate tax payments, but you also need to keep precise records of your purchase price and purchase expenses, plus the cost of all the improvements and additions you make over time (save your receipts, please!). Although you may not be selling your house this year, when you do, you’ll be thankful you have all your receipts in a neat little file. If you rent a portion of your house, or you run a business from it, you’ll also need your utility bills, general repair bills, and housecleaning and lawn-mowing costs in order to calculate your net rental income or your home office expense.
13. Business expenses: The IRS is especially watchful in this area, so be sure to keep detailed proof of any expenses that you claim. This proof can consist of many items, such as receipts of income, expense account statements, and so on. Remember that the IRS doesn’t always accept canceled checks as the only method of substantiation, so make sure that you hang on to the bill or receipt for every expense you incur.
Remember that it’s only your taxes — not life or death! Do your best, but don’t obsess. Even the IRS understands that only those with tombstones over their heads never make mistakes. Remember, it’s the new, friendly IRS. But, it will charge interest and penalties.
(Personal Finance Management Guide by Marie
Claire Cooper. It’s all about good reading and smart information.) http://personal-finance-management.blogspot.com/
