Taxes Can Be Scary: Part 7

Tax Fear # 7

Afraid I'll Miss Out on a Tax Break

I understand that when it comes to taxes, there are a lot of us out there who feel lost. We fear that if we try to file our tax return, not only will we overlook an error, but we fear that we will overlook tax breaks that we should be taking advantage of. Again, a reasonable fear but not a good reason to avoid filing your tax return.

You need to accept the fact that filing your tax return is going to take some homework. Before you start your return, be sure to check out the limitless publications available so you'll know exactly where this year's taxes might possibly trip you up. Again, you can also turn to tax preparation software or a tax pro for help in claiming all your possible tax breaks. Don't let fear take hold of you. The worst thing you can do...is nothing.

Cheers!
-Taxus

Further Reading:
Tax Deductions

Taxes Can Be Scary: Part 4

Tax Fear # 4

Afraid my tax advisor is incompetent or a crook.


This fear has been substantiated for some as soon as they turned on the news and saw that a number of Jackson Hewitt franchises had filed bogus returns for clients and as a result, 125 branch offices were shut down. The same fear is also validated every time they hear a friend say that they were audited because the person that did their taxes screwed something up. It’s a reality for some but it does not need to hold you back from filing your returns.

Everybody makes mistakes, even tax professionals. I am afraid it’s human nature. But no one said that you had to pay for those mistakes. Do your homework and hire a reputable firm. You can look them up online at the Better Business Bureau’s website or go to RipOffReport.com and read the testimonials that have been posted. And once you are a client, don’t take every suggestion at face value. Make sure you ask questions and understand why it is that they are putting what they are down on your tax return. Remember, if it sounds shady…it probably is.

Cheers!
Taxus

Taxes Can Be Scary: Part 3

Tax Fear # 3:

Afraid to e-file because my personal info could be lost or stolen


Roughly 50% of taxpayers send in their returns electronically. Part of the group that comprises the other 50% are afraid that filing electronically puts you and your personal information at risk, and this is why they are still filing the old-fashioned way.

I cannot sit here and tell you that identity theft is not a major issue nowadays. Hackers have become really good at breaking into online financial data systems and will do so from time to time. One of the biggest issues though is not the submission of sensitive material through the computer but the storing of such data on the computer in the first place. Currently, one of the biggest problems the IRS has concerns the theft or loss of laptop computers that contain such information.

The transfer of sensitive tax data online will involve the taxpayer and the IRS server. Make sure everything is secure on your end and that your computer has an up-to-date firewall and virus protection program. As for lost data, make sure you back up your files regularly. There’s no reason that a computer or data loss should cause filing problems. I am afraid that the IRS doesn’t really accept that as an excuse for not filing a return.

Cheers!
- Taxus

P.S. This is a misplaced worry. Although the fear of identity theft is very valid, the fear that an e-file will cause it is wrong. See this article on Taxes and Identity Theft to learn what to really be wary of. Or, try these I.D. theft articles.

Taxes Can Be Scary: Part 2

Tax Fear # 2:

Afraid That I Will Make an Error That Will Cost Me Dearly

"Ok. Say I file my taxes. But what happens if I make a mistake and owe money? No no, I can’t let that happen. I am just not going to file at all."

Seems ridiculous but some people really do think this way. They believe that at some point while preparing their own tax return, they are going to make some kind of error. This might include choosing the incorrect filing status, forgetting to include additional income, claiming dependents they shouldn’t, or even filing the wrong tax form altogether.

Trust me. It happens to the best of us. We are going to make mistakes and that is how we learn. Do not forget that we learn from not only other’s mistakes, but also our own. If you are afraid of making a goof, slow down and take your time. If you do not know something, ask someone for help. READ THE INSTRUCTIONS. Take the necessary precautions in order not to make a mistake. Simple as that. You cannot let the fear of messing up prevent you from filing your tax return altogether. If you did, pinpoint that as one of the biggest mistakes you can make.

Also, if you do make a mistake, you can file an amended tax return in order to fix it. This is also why it's important to file early... in case you do make a mistake.

Cheers!
- Taxus

Taxes Can Be Scary: Part 1

Tax Fear #1:

Afraid I cannot prepare my own taxes

Ok, I admit that this fear is not only common but occasionally justified by the way our tax system continues to make things more complicated. There is always new tax code being introduced and what was suppose to be a simple tax return can now seem like a calculus exam.

The media has not tried to alleviate this fear either. You cannot watch television without coming across a commercial for a tax preparation service promising to handle filing your taxes, because your taxes can be complicated and should really only be prepared by professionals. If you mess up, you will have the IRS to deal with.

So what do you do? Well, some of us panic. But that obviously doesn’t help things. Take a minute to breathe and realize you have options.

First, don’t assume that when you sit down to fill out your tax return that you have to know all the answers ahead of time. Chances are you aren’t going to know something and will need to ask someone for help. So do just that. It’s ok to do so. I promise.

If your tax situation is not too complicated, you can purchase computer software to aid you in preparing your return.

Another option is to hire a CPA who can assist you or to take your tax returns to a tax preparation firm. It’s your call and what you do should best fit your situation. In the end, keep in mind that not filing your returns because you are afraid you won’t be able to prepare them yourself is not a good reason for not filing taxes altogether. You always have options.

Cheers!
-Taxus

Further Reading:
Picking A Tax Professional
Need Old Return Filed? Hire an Enrolled Agent!
CPA? Software? E-File? WHAT'S A GIRL GOTTA DO TO GET FILED?!

Think You Can Prepare Your Own Taxes? Prove It!

Money Central has a quiz out to test your tax I.Q.

I know a lot of people believe they know enough to prepare their own taxes despite educated people urging them not to, but now you can test your tax I.Q. and settle that dispute forever.

If you find you ARE savvy enough to do your own taxes, check out these articles:

E-Filing Can Be Dangerous. Here's Why.

CPA? Software? E-File? WHAT'S A GIRL GOTTA DO TO GET FILED?

If you find you DO need a tax preparer, check on this article on how to choose one.

Tax Document Clinic Part 2: Organizing All Those Papers

(Tax Document Clinic Part 1: What to Keep & How Long)

First step... shred all the things you no longer need. And I do mean shred. (Didn't you read my identity theft post?)

Now, the easiest way to do this, per a professional organizer, is to sort your documents into three categories: Income, Expenses, and Statements. For those of you who are anal out there, you can subdivide Statements into Banking, Credit Cards, Investments, and Retirement. Now, arrange these by year. Buy a little plastic hanging container, some green hanging folders, some manila folders to keep paperwork within a main category neat, and then store. Throughout the year, file as you go along and you'll be ready to go for '08.

Want something more sophisticated? See Organizing Financial and Tax Return Information Digitally by Ariane over at Neat & Simple Living. The coolest gadgets? Neat Receipts to scan and sort your receipts and the Fujitsu Scan Snap to scan and sort statements. Sweet! Check out her store for other interesting organization gadgets.

Just remember... e-filing bad so no tax software!

Tax Document Clinic Part 1: What to Keep & How Long

Let's get right to it...

What Records Do I Keep?

• Tax Items: Returns, canceled checks & receipts relevant to your tax return, & records for tax deductions on your return
• IRS Contribution Statements
• Other Retirement Savings Plan Statements
• Bank Records
• Brokerage Statements
• Bills
• Credit Card Receipts and Statements
• Pay stubs
• House/Condo Records

How Long

One Year

• Pay stubs: Keep until you get your W-2(s) and make sure everything matches. If they don't, demand an amended W-2, known as a W-2C.

Ten Years

• Tax Items

• Bank Records: Keep the bank records relating to tax matters for seven years.

• Credit Card Receipts and Statements: Keep receipts until your month-end statements come, then match everything up, shred receipts, and keep statements.

Until You Sell

• Bank Records (the ones relating to home improvements and mortgage payments).

• Brokerage Statements (too prove capital gains/losses at tax time).

Permanently

• IRS Contributions Statements (to prove you paid tax on this money already).

• Other Retirement Savings Plan Statements: Keep the quarterlies during the year, make sure everything matches up at year-end, shred the quarterlies, and keep the yearlies forever.

• Bank Records (the ones relating to home improvements and mortgage payments.)

• Bills: Keep bills of large value items (to prove value); toss bills that are more than a year old and have been paid in full (a.k.a your utility bill from 3 years ago).

• House/Condo Records: Keep records documenting purchase price, permanent improvements, and expenses incurred in buying/selling the home. This will help you during tax time.

Seems like a lot of paper, huh? See Part 2 where I go into organizing those documents!!

Small business owner? See customized document info at A Tax Consultant for All Seasons:
What Records Do I Need to Keep?
How Long Should I Keep Records

E-Filing Can Be Dangerous. Here's Why.

We're all aware that the IRS is pushing everyone to e-file. It's quicker and simpler for everyone involved. We know the positives. What are the minuses. Once again, I summarize content from IRSMind.

1. By e-filing you're essentially giving the IRS more time to look over your return and potentially audit you. E-filing posts in 1o days. Paper returns post in 6-8 weeks. Basically, by e-filing you're giving the IRS an extra 2 months to audit you.

2. E-filing gives the IRS a much clearer picture of your tax return. This is because an e-file is fully inputed while a paper file only has key criteria entered into your master file. Why is more info bad? Because if something ever goes wrong, the IRS will have more info to argue against you with.

3. A paper return has documentation attached to act as proof, such as reasons why your charitable deductions are deductible and the amount is accurate. In e-filing, documentation is not always attached or may not make it to your file. In true government fashion, the IRS will usually choose the low hanging fruit, the easiest targets, the ones with the highest probability of not proving their case when choosing who to investigate. Do you want to be that person?

4. The IRS has significantly sped up the time it takes to receive a refund. In fact, if they are significantly late is paying a refund, they must pay interest on it. The difference between paper and e-file is usually 2-3 weeks. So, the argument that e-filing is a worth the risk since you get your money sooner is flawed.

5. (Point added by yours truly) Giving the IRS direct access to your banking info by e-filing and getting Direct Deposits only gives the IRS an easy source to levy if you get into trouble. If you change your bank account frequently, this shouldn't be an issue, but how often do you really do that?

So, why should I e-file? The only real reason is to lessen the government's expenses during the filing season. Other than that, I'd stay away from it. See my earlier post for filing alternatives.

No W-2? No Problem....? Wait, what?

When I was in college and moving around a lot it wasn't uncommon for me to not receive all my W-2's. Thinking nothing of it, I would file my return without them. Luckily back then I wasn't making enough money for this to be a huge issue.

However, if I did this now, it would be a huge issue. Here's why...

When your employer mails your W-2 it doesn't just go to you. A copy also goes to the IRS. Once April 15th passes, the IRS starts matching up returns to these company-filed W-2's. If the IRS finds W-2's that you didn't report, it will hit you with penalties and interest on that unreported money.

So, what do you do if you don't get all your W-2's? First, understand that it's your responsibility to make sure all of them get to you. If one is missing, contact your employer and ask for a replacement. They are required by law to provide you with these.

If you cannot get a replacement for some reason, use form 4852 to substitute for a W-2. To fill out this form, use your most recent check stub or that last check stub for the filing year you're doing. (Check out this article to understand how to read your paystub) Also, provide the IRS (it can be written) with as much employer info as possible and what you did to get your W-2. Attach this to your return.

Still unclear about making a W-2 replacement or having problems getting a replacement W-2? Sharon Raines did a good post on filing without a W-2.

CPA? Software? E-File? WHAT'S A GIRL GOTTA DO TO GET FILED?!

So, it's that time of year again... TAX SEASON.... yay.

Naturally there are many choices for preparing your tax returns... CPA, tax prep firm, e-file, software. But what's the best?

Well, once again, it's all about choice, that is, your preference. Working for the tax industry I can tell you, because the experts have told me, that you should always get your return professionally prepared. The peace of mind of knowing you got it done right always outweighs the expense. However, you need to know who to go to, because although preparers are filing on your behalf, the IRS still sees you as solely responsible for what's on that return, including mistakes. Therefore, choosing the right preparer is key. I recommend Sharon Raines, and Pat Harker.

However, if you're hell bent on getting it done cheap, tax software may be the next best thing. Still, it depends on your return. If it's complex, a tax preparer may be the best way to go. On the other hand, if it's simple you may be wasting money on software when you could do it yourself through e-file. Sharon has a good article on finding the best tax preparation software and some good points to think about when choosing software over other options.

Last, but not least, is the cheapest option by far: IRS e-filing. (It's free. Can't beat that!) Although this option is only available to those who make under 54K, if you fall within this requirement, have a fairly simple return, and feel confident in filing it yourself, this may be your top choice. However, as usual with the IRS, there are further stipulations and specifics to e-file eligibility.

So, you have a decision to make. Again I'll stress getting your return prepared by a tax preparer. You do NOT want to get on the IRS' bad side by making a mistake. However, there are other options.

Additional Articles:

Which Tax Software is Best to Prepare Your 2007 Return?
IRS Free File- Who Can Do This?

Taxes Can Be Scary: Introduction

There are many articles posted on the web that deal with common tax mistakes/blunders. These articles assume that we are filing taxes and usually address the errors that we tend to make along the way…Great articles that usually provide the public with a lot of good information. But where are the articles that speak to those who never even make it that far in the process? Well, I am going to write one that will be broken up into a 7-part series. The main reason for this being that I don’t overwhelm you with too much information (and the fact that most people won’t read a blog post that is the length of a short story). Therefore, it is best I break it up into parts. The main goal of this series will be to address the fears that many taxpayers have and to explain what to do if you suffer from one of those common tax terrors. Enjoy!

- Taxus

Just How Much Is Being Given Back?

INTERNAL REVENUE SERVICE
2007 FILING SEASON STATISTICS
**** Individual Tax Returns cumulative through the weeks ending 9/29/06 and 9/28/07


Total Refunds:

Number
99,173,000 (2006)--------------------103,470,000 (2007)--------------- +4.3%

Amount
$218.731 Billion (2006)----------------$233.695 Billion (2007)------------ +6.8%

Average Refund
$2,206 (2006)------------------------$2,259 (2007)---------------------- +2.4%

During this past tax season, 135,341,000 tax returns were received by the Internal Revenue Service. Of these, 135,033,000 were actually processed. This number is up 2.9% from the previous year. Keep in mind that these numbers, as well as the ones above, do not include business tax returns. Also please remember that if you are due a refund, you only have three years to collect that money from the IRS. There is no reason to sit around and put off receiving money. That's crazy talk. If you don't like money for some reason, please leave me a comment with your contact number so I may call you and give you my address. I will allow you to send me all the money you don't want from this point forward. It will be my gift to you.

Cheers!
-Taxus


As always, you can find an array of articles by perusing this site or by checking out my coworkers' individual sites:

IRS MIND
Tax Negotiation
Tax-Thoughts
Little Miss Tax Lass
Tax Settlement

And if you need the assistance of a tax resolution firm, seek out the best: Effectur, Inc.

Jackson Hewitt? Did You Not Hear What Happened??

Just the other week I took a call from a taxpayer who had been audited by the IRS for 3 consecutive tax years. The person on the phone says to me, "I don't understand how mistakes were made. I had Jackson Hewitt handle the tax returns for those years."

Ahhhh. Now I understand. Apparently the taxpayer had not heard the news from this past summer. In April of 2007, the operators of more than 125 Jackson Hewitt Tax Service Inc. tax preparation offices were sued by the U.S. government. Jackson Hewitt was accused of cheating the U.S. Treasury out of more an $70 million through what the court ruled as a "pervasive and massive series of tax-fraud schemes." Ouch. That's not going to be good for business.

You have to understand, a lot of the tax prep offices employ people with no tax background and then run them through a crash-course on preparing taxes. In the end, they claim to have gotten you money back on your returns you wouldn't have received without their help. While this is true, you were actually getting money back you weren't entitled to in the first place. So now you are going to be out the money it cost to have the company prepare your taxes, you will have to pay the money back you received from the U.S. Treasury, and will now owe penalties and interest on that money you owe.

If you have several years of tax returns that need prepared, it is best to seek out the assistance of a professional firm with TAX and IRS EXPERIENCE. Don't rely on these tax prep chains that promise more money on a tax return. It will only cost you in the end.

Cheers!
-Taxus


As always, you can find an array of articles by perusing this site or by checking out my coworkers' individual sites:

IRS MIND
Tax Negotiation
Tax-Thoughts
Little Miss Tax Lass
Tax Settlement


And if you need the assistance of a tax resolution firm, seek out the best: Effectur, Inc.