What do you absolutely need to know this tax season?
The correct answer, of course, will vary for everyone and depend on just how complex life — and your finances — turned out to be in 2011.
But here are six things you must know for general purposes:
—1. Grab a copy of last year’s return before you try to do it yourself or go to a tax preparer.
Sure, that sounds simple. But it’s also essential. The previous year’s return can jog your memory regarding bank accounts for which you should have received a Form 1099 or help you remember recurring deductions that you should not overlook, said Bob D. Scharin, senior tax analyst for Thomson Reuters in New York.
And if you have a capital loss carryover from last year after selling a stock at a loss, be sure to use it on your 2011 return.
Scharin also warned that taxpayers definitely need to consult that old return if they made a Roth IRA conversion in 2010 and chose to have the resulting taxable income deferred until 2011 and 2012.
Now is the time to report the half of that income that has come due, he said, so you’d need to get the income amount from the 2010 return.
You must remember that 2011 is the first year that half of that conversion income will have to be included in the 2011 tax return.
—2. Watch out for ID theft this tax season.
It’s not a good sign if you electronically file your tax return only to learn that another return has been filed under your name and Social Security number.
Other bad signs: The IRS sends you a notice in the mail stating that more than one tax return was filed for you or that IRS records indicate you received wages from an employer unknown to you. (Someone may have stolen your Social Security number to get a job.)
—3. Many more new, complex forms could be in store for you if you sold stock in 2011.
A new form — Form 8949 — is required for reporting 2011 sales and other dispositions of capital assets. And you’re going to attach Form 8949 to Schedule D. The new form requires you to carefully enter a variety of codes — and more than one 8949 could be required to be filed in a given year.
—4. Beware of con artists.
Get an email from an IRS agent? No, you didn’t. It’s a scam. Some phone calls or information in emails may even include personal details to make it seem real.
Scam artists regularly tap into online social networks, databases and other public records. If an e-mail sounds odd — say if you get an e-mail from the Electronic Federal Tax Payment System — report it by sending it to firstname.lastname@example.org .
The IRS warns taxpayers that it doesn’t initiate contact with taxpayers by email to request personal or financial information. And we’re talking about any type of electronic communication, such as text messages and social-media channels.
—5. Take time to reflect on your life.
Did you change jobs? Spend your own money looking for a job? Did you get married? Have a baby? Buy or sell stock? Foreclose on a house? Buy a new car and then donate the old one to charity? Did you get energy-efficient windows?
Marshall Hunt, certified public accountant and director of the tax-assistance program of the Accounting Aid Society in metro Detroit, points out that many major life events in 2011 could easily have an impact on your 1040.
—6. Review your return whether you do it yourself or have a tax preparer do it for you. Mistakes can be made; things can be forgotten.
Source: MCT Information Services