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Getting down to the wire

Ten critical items to review before you file your return

LOS ANGELES (MarketWatch) -- As of March 23, more than 74 million tax returns were filed with the Internal Revenue Service. Was yours one of them? If not, you've got your work cut out for you.

At this point, you have two choices: scramble to finish your tax return or take the pressure off and apply for an extension on the time to file.

Are you planning to file? Here are 10 things to check before signing that tax return (electronically or in ink) and sending it off:

  1. Find the checklist of missing information you or your tax professional put together back in February. Is everything checked off? If you're still missing information -- and don't have the means to arrive at a good estimate -- get an extension.
  2. Review your tax return to make sure all your income is reported -- with no transpositions of numbers or typing errors. One digit missing extra, or in the wrong place can make a big difference.
  3. Did you remember to take the child tax credit, the education credit or expense, the dependent care credit? And do you have all the providers' identification information entered correctly. Read more.
  4. Did you receive 1099-Rs with distributions from IRAs, pension plans, annuities or other retirement accounts? Are all the amounts in the "Taxable" box correct? If the "taxable amount not determined" box is checked, did you take the trouble to make sure the amount you determined is correct? Sometimes, doing research into the basis of 1099-R distribution will yield a basis you'd forgotten about. For instance, non-deductible IRA contributions. Make sure you have the correct distribution code entered. If it was a rollover from one account to another be sure you're showing 0 in the "taxable" box. If the 1099-R is not showing it as a rollover, be sure to attach an explanation about the rollover transaction. Do you qualify for any exemptions from the early-withdrawal penalty, or part of the penalty? Things like buying a first home, education costs, health insurance (if you're unemployed), and several other things will eliminate the penalty.
  5. Bill Fleming, a Hartford-based personal finance managing director with PricewaterhouseCoopers Private Company Services points out that there were tax benefits not appearing on the tax return, like tuition and fees deductions, educator's expenses, state and local sales tax deduction, among others. Did you remember to take advantage of them? Read more.
  6. IRA and other retirement contributions -- make sure you've funded the deductions you're taking on your return, says Peter Sander, author of "The Ultimate Guide to Personal Finance for Entrepreneurs." Don't just assume you sent the money in. Check with your financial institution to make sure they've received it and that it's applied to the correct year.
  7. Health savings accounts -- Sander also urges you to maximize your funding for your HSAs. This is a very flexible way to save. And you don't have to wait until retirement to use this money. Fleming suggests you take advantage of a one time IRA to HSA rollover, which is permitted beginning in 2007 (limited to the maximum current year contribution).
  8. Paying your children. Sanders points out that people often forget to do tax returns for their children to reflect their earnings from parents' businesses? If you haven't prepared your child's return, and don't have time to do it now, file an extension for your children. And put yours on extension too. Not a great idea to take a deduction on your Schedule C for paying your children, without having your children report the corresponding income.
  9. Remember the "kiddie tax" rules are retroactive to Jan. 1, 2006. Fleming explains that this mid-2006 change requires children under age 18 to pay tax on investment income in excess of $1,700 using the parents' marginal tax rate. If the child is 14 to 18 and has investment income in excess of $1,700, you can report this income on their tax return or yours. But, did you remember to account for your 16-year-old's investment income? Go on extension!
  10. Beware the charitable contributions trap. Do you have all your receipts for contributions made after Aug. 17, 2006? If not, get them before you file. Fleming explains that charitable contributions of $250 or more require acknowledgement from the charity with special language in order to support a deduction. Contributions less than $250 are permitted for 2006 without a receipt, but the taxpayer must have some other record of the contribution (such as a cancelled check or thank-you note).
More time

Feeling overwhelmed? Or did you just get some good ideas making you want more time? Either way, if you want to file an extension here's a quick checklist to help you do it right and avoid problems.

  • Did you find the forms for IRS? For individuals it's Form 4868 http://www.irs.gov/pub/irs-pdf/f4868.pdf. Partnerships, trusts, and other entities use Form 7004 http://www.irs.gov/pub/irs-pdf/f7004.pdf. Gift tax return needs a Form 8809 http://www.irs.gov/pub/irs-pdf/f8809.pdf. (Note: if you are filing a Form 4868, your gift tax return is automatically extended too. Use Form 8809 if you have already filed your income tax return or don't need to file a Form 1040 at all.)
  • Did you find your state extension forms? http://www.taxadmin.org/fta/link/forms.html
  • If you must pay, do have the payment vouchers for the IRS and your state(s)?
  • Checks can be a sticking point. Enter the form number, year and the taxpayer identification numbers for yourself and your spouse, if applicable, on any check. Be sure the checks are made payable to the United States Treasury for IRS and the correct state entity for your state. Put the check into the right envelope -- look again.

Don't be afraid to file an extension and look over your tax return just a bit more. With the last-minute extender legislation in 2006 and all the on-again, off-again changes -- and some of the opportunities that arose in last year's series of tax bills -- there just may be some tax-savings opportunities worth exploring one last time before sealing that IRS or state envelope.

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Source: https://www.marketwatch.com/story/ten-critical-items-to-review-before-you-file-your-return

Posted by: janinescaggs.blogspot.com

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