How to Prepare Now for the Tax Filing Deadline

The IRS officially began accepting returns for most taxpayers, and will allow all returns to be filed in just a few weeks. Although tax filing season has not officially began yet everyone, there are plenty of actions you can take now to help make preparing your return less stressful.

1. Breathe

So many taxpayers get stressed out just at the thought of preparing for tax season. Be sure to take a deep breath, and try not to get too worked up over your tax return. You have plenty of time before the April deadline, and this year you have until the 18^th. By getting started now you are going to have a much less stressful tax season.

2. Gather Tax and Financial Documents

It is a good idea to put together a designated folder for your tax and financial documents. That way, when it comes time to prepare your actual return you will have all of your information already organized. Some items you will want to include in this folder ate W2 forms from employers, 1099 forms if you worked as an independent contractor or earned income from investments, receipts from charitable contributions, mortgage interest statements, vehicle registration bills, etc.

3. Get Copies of any Missing Materials

If you are missing any documents, then you will want to get copies as soon as possible. For example, you might need to print out copies of bank or credit card statements for deduction you intend to claim, but can't seem to find the receipt.

4. Toss (or Shred) Unnecessary Documents

You don't really need every single bank statement or pay stub in your tax folder. If you do want to keep all of these documents put them into a different file. That way you will not feel overloaded with paperwork when you sit down and attempt to prepare your return in a few weeks.

5. Be on the Lookout for your Income Statements

You should expect to receive W2 and 1099 forms some time this month. Be sure that you are on the lookout, so that you do not accidentally throw them into the trash with your junk mail. If you do not get your W2 by February then you will want to contact your employer to make sure it was sent to the correct address.

6. Find your Return from Last Year

Make sure that you include your most recent return at the front of your tax file. Unless you changed jobs, or made a major tax move like purchasing a home, then you should be able to use your old return as a guide for completing you new one.

7. Verify the Exact Amounts of Charitable Deductions

The IRS has been cracking down on charitable contributions over the past couple of years. Be sure to look over your receipts and make sure that you can substantiate the market value of your contributions. Additionally, if your contributions exceed $500 you will need to complete IRS Form 8283, and if any item is valued at over $5,000 then you must obtain a written appraisal. For more information on charitable contributions check out this article on RDTC.com.

8. Anticipate Errors

There are a few common errors that many taxpayers make on their returns. Before you even begin to think about preparing your return look over some of these common mistakes, so that you are mindful of them once tax season begins.

9. Think About Hiring a Pro

If you have a complicated tax account, or simply do not want to hassle with preparing your own return then you should think about hiring a tax professional. Check out a few local tax preparation offices in your neighbor hood and make an appointment before they start getting busy.

Tax Deadline Extended to April 18, 2011

Yesterday the IRS officially opened the 2011 tax filing season and announced that taxpayers would have until April 18th to file their tax returns. The IRS is giving us three extra days when they will take up to a month and a half to fix their own processes and forms. Does this seem fair?

Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.

The IRS expects to receive more than 140 million individual tax returns this year, with most of those being filed by the April 18 deadline.

The IRS also cautioned taxpayers with foreign accounts to properly report income from these accounts and file the appropriate forms on time to avoid stiff penalties.

“The IRS has made important strides at stopping tax avoidance using offshore accounts,” said IRS Commissioner Doug Shulman. “We continue to focus on offshore tax compliance and people with offshore accounts need to pay taxes on income from those accounts.”

The IRS also reminded tax professionals preparing returns for a fee that this is the first year that they must have a Preparer Tax Identification Number (PTIN). Tax return preparers should register immediately using the new PTIN sign-up system available through www.IRS.gov/taxpros.

Read more at IRS.gov

IRS Removes Debt Indicator for 2011 Tax Filing Season

In their newest press release, the IRS announced that starting this January they will no longer provide tax preparers with a “debt indicator,” which had been used to facilitate refund anticipation loans (RALs).

“As we prepare for tax season every year, we look at past practices and consider whether they still make sense. We no longer see a need for the debt indicator in a world where we can process a tax return and deliver a refund in 10 days,” IRS Commissioner Doug Shulman said. “We encourage taxpayers to use e-file with direct deposit so they can get their refunds in just a few days.”

So far this year, more than 95 million tax returns have been e-filed, representing more than 70 percent of tax returns.

“Refund Anticipation Loans are often targeted at lower-income taxpayers,” Shulman said. “With e-file and direct deposit, these taxpayers now have other ways to quickly access their cash.”

The IRS has been reviewing refund settlement products, such as RALs and Refund Anticipation Checks (RACs), as part of the Return Preparer Review released in January. Specifically, the IRS announced that it would study refund settlement products.

RALs are loans secured by a taxpayer’s anticipated tax refund. Currently, tax preparers who electronically submit a client’s tax return receive in the acknowledgment file an indication of whether an individual taxpayer will have any portion of the refund offset for delinquent tax or other debts, such as unpaid child support or delinquent federally funded student loans. This acknowledgment is known as the debt indicator, and is used as an underwriting tool for RALs.

Higher Taxes Ahead for Business Owners

I made an appearance on Fox Business News a few days ago, to discuss higher taxes ahead for American business owners. If you missed my segment, you can check it out below or at FoxBusiness.com

Taxes: Are You Crossing the Line?

Most taxpayers who have not yet filed their returns with the IRS are probably feeling a lot of stress and pressure to beat tomorrow’s deadline. However, as Nicholas Narlis explains in this article for Washington Post.com, last minute filers need to be extra cautious to avoid taking undeserved credits and deductions.

Nowadays, the process of filing tax returns online makes the actual signing where you attest to the accuracy of each filing feel less eventful. But do not kid yourself: The magnitude of placing your own "John Hancock" on these documents is the trigger to your own smoking gun. You will be held responsible to the letter of the law for its contents regardless of who assisted in preparing those forms. There is good reason why tax authorities require all applicable parties to sign in ink.

Life is filled with similar dilemmas where a decision (or inaction) could produce a very positive or extremely negative outcome. Everyone has a different tolerance for risk vs. reward. Having a keener sense of where you stand and what could eventually end up on your personal life map is paramount to effective risk vs. reward management.

The essence of this particular dilemma lies in answering this initial question: Even if the upside appears to be a sure thing, can you afford to accept your fate in the event that the worse-case scenario of a life decision implodes on you? In other words: If you can’t do the time, then don’t do the crime in the first place.

You will not be the first (or last) person to think you will luckily escape drawing the short stick in being put to the test via a tax audit. All too often, you can lull yourself into thinking the ritual of doing your taxes is more than what it is. After all, it is expected that every law-abiding citizen will complete an accurate tax return each year. But somehow people lose proper perspective and in the process also lose their own purpose in life.

Continue reading at Washington Post.com…

CNN News: Tax Filing Tips

Last week, I appeared on CNN news to provide tax filing tips to help get taxpayers prepared for the upcoming April 15^th deadline. If you missed my interview, then you can watch it in the embedded video below. Also, make sure to watch The Today Show next Friday when I will be making an appearance in the 10 AM EST hour.

Rushing to do Taxes? Avoid These 10 Last-Minute Mistakes

People all over the country are rushing to get their tax returns prepared and filed, and as Sandra Block of USA Today.com explains in this new article, when you hurry, you're more likely to make mistakes. She put together a list of 10 last-minute errors that could attract unwelcome attention from the IRS. I have included a few of the items below, but be sure to check out the full list at USA Today.com.

1. Incorrect Social Security numbers

In 1987, the IRS started requiring parents to provide Social Security numbers for children who were claimed as dependents on their tax returns.

If you omit Social Security numbers for any of your dependents — or use a wrong SSN — the IRS may disallow the exemption. You also could lose some valuable credits, such as the child tax credit, the child and dependent care credit and the earned income tax credit.

When you enter a dependent's last name, make sure it's the exact name that appears on the child's Social Security card. Likewise, if you got married and changed your name, make sure you notify the Social Security Administration before you file your taxes.

2. Incorrect bank account information

The IRS strongly encourages taxpayers to file electronically and arrange for direct deposit of their refunds. E-filing reduces errors and enables you to get your refund in a couple of weeks, vs. four to six weeks for paper-filed returns. But if you go this route, take extra care when you plug in your routing and account numbers. Otherwise, your money could end up in someone else's bank account.

3. Overlooking charitable contributions

Continue reading at USA Today.com…

Two Out of Three Individuals Now Using IRS e-File

From the IRS Newsroom:

Individuals e-filed a record 95 million federal income tax returns during 2009, up almost 6 percent from last year’s total of nearly 90 million. About two out of three taxpayers e-filed this year; out of the 141 million returns filed so far this year, over 67 percent were e-filed, compared to 59 percent last year.

Each year, more taxpayers chose to e-file their tax returns. While the total number of tax returns has increased 10 percent during the past decade, the number filed electronically has increased by 168 percent. Taxpayers who e-file from a home computer continue to be an increasingly significant segment of those who e-file.

Home Computer e-Filers

This year, for the first time, more than a third of e-filers are those doing it themselves from a home computer More than 32 million returns were e-filed from home computers, up almost 20 percent from last year’s record of 27 million. People filing from their home computers account for about 34 percent of all e-filed returns from individuals.

Direct Deposit Refunds

Almost 73 million refunds were electronically deposited into taxpayer’s accounts, saving the government mailing costs and saving taxpayers a trip to the bank. More importantly, these taxpayers received their refunds a week sooner than those receiving a paper check.

These direct deposit refunds accounted for 66 percent of all refunds, up from 62 percent of refunds last year. Overall, the IRS issued 110 million refunds, averaging $2,753 per refund; direct deposit refunds averaged $2,997 per refund.

Free File

More than 3 million taxpayers filed their tax returns for free through the IRS free file program. This year for the first time, taxpayers could also file directly to the IRS by completing a Form 1040 on IRS.gov; 273,000 taxpayers used this new way to file.

IRS E-Filing Now Open For Most Taxpayers

As of last Friday, the IRS officially opened e-filing for the tax season. All taxpayers that are not affected by the last minute AMT patches are now eligible to e-file their federal tax returns. To find out if these changes will delay when you can file your return, check out “How Will Congress’ Last Minute AMT Fixes Affect My Tax Return” on the RDTC Tax Help Blog.

Last year over 80 million taxpayers e-filed their income tax returns. Almost 57 percent of all returns were filed electronically.

“IRS e-file is the fastest, easiest and most accurate way to file a tax return,” claims IRS Acting Commissioner Linda E. Stiff. "We strongly encourage taxpayers to take advantage of the benefits that electronic filing offers."