Preparing Your Tax Return


Well this time of the year seems the hardest to many people because they simply can’t get started on their tax preparation. But the truth is until you don’t actually start your returns you’ll never get done with it. The idea is of course just begin doing it even if you can’t think of any numbers except your name and address, that will get you started and things will start flashing in your mind what to do next.

Make sure you gather all the data like W-2 from your employer, 1099 for interest, dividends and sale of stock and any other statements from your bank and broker. The mortgage company sends a form 1098 for any interest and real estate taxes paid. The common mistakes that everyone makes and should be taken care of are:

1. Calculate your taxable Social Security properly. Double-check with your taxable social security worksheet if you are filing a paper form.
2. One of the common mistakes - the standard deduction amount is different if you and/or your spouse are age 65 or older and/or blind. If you are completing a paper form, make sure you are using the proper chart to determine your standard deduction.
3. Make sure you report all sources of income like interest income, dividends, stock sales etc.
4. Review your prior year tax return which can assist you in completing your current tax return.

Now to get started with the actual tax return preparation select the right filing status i.e. single, married filing jointly, married filing separately, head of household, and qualifying widow(er). Now, if you are confused over whether to file a joint return or separate return if you are married, it is advised to file jointly because in most cases you will pay fewer taxes if you are married and filing jointly. If you are not married you should file as single or head oh household. But to be eligible for the head of the household you should be supporting at least one dependant. If you are a widow or widower you can file a joint return for two years following the death but with following limitations: (1) you take care of a qualifying dependant 2) you pay more than half the cost of keeping up your home for you and your dependant and (3) you must not have remarried before the end of tax year.

Let us move on to standard deduction now, standard deduction is the basic tax deduction that all tax payers are entitled to get. For the year 2006, the standard deduction is $5,150 for single filers, $10,300 for married filing joint return and for qualifying widow(er) and $7,550 for head-of-household. The standard deduction is more for visually disabled and those aged 65 or higher. If they are married they are entitled to extra $1000 and if they are single or head of household they are entitled to $1,250 more. An individual who is both over 65 and blind can take two additional standard deductions. Married taxpayers filing jointly both of whom are over age 65 and blind would be able to claim four of the additional standard deduction amounts.

There is an option of itemizing your deductions in place of standard deductions. But it’s a wise idea to go for itemized deductions when the itemized deductions are more than standard deductions but irrespective of whatever the higher of the two will be considered by IRS. IRS has put certain limits for high income categories, if the adjusted gross incomes or AGI is over $150,500 for single, head of household and married filing jointly or $75, 250 for married couples filing separate returns. Once AGI crosses these limits the itemized deductions are reduced by 3 percent of the excess AGI though medical expenses, casualty losses and investment interest are not subject to this rule. The good news is that overall limit on itemized deduction is phased out to reduce by one-third in taxable years beginning in 2006 and 2007 and nearly two-thirds in 2008 and 2009. Do not forget to include the things that you can itemize like you can deduct business mileage, business meals, relocation deduction, charity donations, etc.

The most important thing to do is put the final numbers in the appropriate boxes and double check the numbers before you final it out. If there are discrepancies in the numbers it may raise red flags to IRS for an audit. Also do not forget to sign the forms. The last thing to do is mail it to the right IRS center for your region before the deadline.