Getting Organized for Tax Time: Before and after
Many refund delays, time-consuming correspondence and audits are triggered by taxpayer carelessness. Here are some reminders about items to check before you file your return, along with some steps to take afterward.
Start With the Basics
Check the package of paperwork sent by the IRS. First read the instructions to make sure you have all the necessary forms. If not, they are easily available through several channels. To get them by mail, call 800-829-3676. For forms by fax, call 703-368-9694. Or download copies at www.irs.gov on the Web.
Whether you fill out the 1040 yourself or hire some to do it for you depends on how complicated your finances are. Does your income derive mainly from salaries, with some interest from savings and dividends from stocks and mutual funds? And do you claim either the no-proof-required standard deduction or simple-to-calculate itemized deductions for charitable contributions, real estate taxes, mortgage interest and state income taxes? If so, you probably can file without paid help or with free help available from numerous taxpayer-assistance programs. AARP, for instance, assists older tax payers.
Do you have income from, say, rental properties or partnerships, or do you operate your own business—whether on a part- or full-time basis? Then you might need an accountant or other qualified professional. If you choose to use a paid preparer, arrange to meet as early as possible during the filing season. For a first-time meeting, bring along prior returns. In some cases, reviewing past filings uncovers miscues that require amending or ways to trim the tab that you might now be overlooking. Mistakes tend to repeat themselves; you can go back three years to correct errors, with the recalculating done on Form 1040X. Changing a federal return might also require amending a state return. In that event, file your state’s version of the Form 1040X.
Scour personal records, including checkbooks, credit card statements, receipts, appointment calendars and bills for 2003 and returns for 2002. Your objective is to search for forgotten deductions, especially if you run a business.
Filling Out the 1040
If you are a do-it-yourselfer, read the instructions carefully. They explain changes in the tax laws (such as the many revisions introduced in the legislation signed by President Bush last May) and are essential to accurately preparing your return. Before sending in your return, photocopy it. Also be sure to attach securely all required schedules and statements, such as Schedule D, on which you list sales of individual stocks or shares of mutual funds or carry forward unused capital losses from 2002.
Don’t panic if you are promptness-challenged. If you file late, the IRS can exact a nondeductible penalty of as much as 25 percent of the balance due, an assessment that can be avoided simply by submitting IRS Form 4868 by the deadline to get an automatic four-month extension to Aug. 15.
After You File
Save records that support deductions and other items, as well as a copy of your return. You’ll need them if the computers bounce your return. Generally, the statute of limitations for the IRS to start an audit is three years from the 1040’s due date. As one last step, open a file now for this year and begin to save the information that you will need next year. .
Julian Block, a nationally renowned tax expert, can be reached at email@example.com.