Tax Return Preparation - What You Need, What You Should Do

Tax Return Preparation - What You Need, What You Should Do

Preparing your tax return is not the easiest task under the sun. However, even an honest mistake can land you knee-deep in trouble, or even to a fraud accusation. Therefore, be as careful as possible while filing your return, and keep ample time in hand to complete the process. In order to file an accurate tax return, you will need proof of your income, investments and major expenses over the past year. Documentary proof such as forms, invoices, receipts and statements is always desirable, though a well-maintained MS Excel spreadsheet is sufficient if you have the documents but have not sorted them out. Proof of income that you need includes - 1. W-2 Forms2. Form 1099s - statements for social security, dividends, interest, retirement and brokerage3. Proof of alimony received4. Proof of jury duty and pay given5. K-1 statements for partnerships, small businesses and trusts6. Records of income and expenses for self-employment and/or rental propertyOther documents that will be required if you possess them are:1. Escrow statement for property transactions2. Proof of expense due to moving, education, daycare(child or adult)3. 1098-E, i.e. proof of interest paid on student loan4. Proof of IRA contributionsFinally, a third set of documents should be kept to let you avail of applicable tax deductions. Deductions are incurred for:1. Expenses due to health care - psychological therapy, medicine(excluding OTC drugs), surgery, insurance premiums, doctors' fees etc2. Taxes on real estate3. Interest paid on mortgages4. Registration of your vehicle5. Charitable donations6. Preparation fees for last year's tax return7. Expenses relating to the job - professional accreditation or further education, uniforms, union dues etc8. Losses incurred by gambling(though only upto the value of money earned by gambling in the same year)9. Losses due to theft, accident or casualtiesOnce you have your documents ready, you can either submit them to a tax preparer, or prepare your taxes for yourself. Businessmen and self-employed people are best off leaving their taxes to a tax preparer, but the salaried or wage-earning individual can, quite easily, file taxes without much outside help. There are three forms that can be used for filing taxes:1. Form 1040EZ. The shortest and easiest form to file taxes in. If you fit the eligibility criteria to use this form, definitely choose it.2. Form 1040A. The "short form" of the tax return format, the 1040A is useful for people who need to claim certain adjustments to income3. Form 1040. The "long form", or the whole deal where a tax return is concerned. This is the form you use if you want everything, or if you are simply not sure where certain data should go. Fill up these forms by hand, or using tax preparation software on the computer. Once they are filled up you can either choose to e-file, or to print out your forms and mail them via post. E-filing is the best option for the average tax return, but paper filing may be necessary for certain filing statuses. Always file a week or two before the last date, so that you complete the process in an unhurried, systematic manner, and are prepared to handle any sudden system failures or rejection of your tax return.

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