Pay Close Attention To These!
Much of the information we need for your return is easy to collect and easy to describe. However, some areas are more complex and need extra information. Here are some cases where I often must send clients looking for extra information. This can cause delays we don't need.
College Education. If a family member is attending college, there are three different tax breaks that might help you. I can get the biggest savings if your records are complete.
Expense - Tuition & Fees. The student gets Form 1098-T. I MUST see this! It lists not only tuition & fees,-but-I need the-name, address, and Tax ID Number of the school. Problem - the student gets the Form, not the parent! If they lost it, send them to www.l098T.com.
Other Expenses. Those who don't already have a college degree can claim even more costs. Books, supplies, special software, maybe even their computer. Ask the student for all course-related costs.
College Savings Plans. Did you use a "Section 529 Plan" or a "Coverdell" savings plan to help pay the costs? If so, you'll get IRS Form 1099-Q. Your money grew tax-free. But, we must show the funds were used for "qualified expenses", else the growth will be taxed now. You could pay a penalty as well! Keep records of any and all costs.
Youngster's Tax Returns. If the student is your child, we can run into something called "Kiddie Tax". Warn the child not to file their own return until we've checked the rules.
Over 70-1/2 - IRA To Charity. You must take a distribution each year. If you have the Custodian send a check to a charity, it counts as a distribution, but is not taxed. No need to claim a deduction. You get full value for your donation. 2013 is the last year for this rule.
Troubled Loans. If you had a loan modified, or lost a property in a foreclosure or short sale, I need lots of details. Your problems are not behind you until we deal with the tax issues. You might have income from cancellation of part of the mortgage. Look for IRS Forms 1099-A and/or 1099-C. I must see these. I need as much information as possible about what really happened. I need the history of all loans for the property. It helps to see a few mortgage statements. These cases can involve more than simply tax law, so please be as thorough as possible.
Businesses. Liberal rules for depreciation were extended to 2013. I need details on all major purchases.
Employees - Last Pay Stubs. Your W -2 is critical, but if I can see the last couple of pay stubs, we may find even more valuable deductions.
Mileage Deductions. For 2013 you get 56.5.¢ for each business mile. This can be a valuable deduction. Employees can't deduct driving to work, but look for visits to clients, extra meetings, errands, or shopping for supplies. Business owners have the same and more. Landlords need to log trips to the property, buying supplies, driving for maintenance. Costs for parking and/or tolls can be claimed in addition to the mileage deductions. A log is best, but other records can verify your driving.
Collect Unemployment? You're not alone - a record number of Americans collected this year.
Step 1 - This is taxable - don't lose the Form 1099-G!
Step 2 - you may have deductible job search costs.
Foreign Asset Reports. Do you have an account or assets in another country? Of course, we all report our "worldwide income" on our tax returns. IRS now demands an extra report if balances reached $10,000 or more during the year. An even more complex report is needed if you have an interest in $50,000 or more of foreign assets. If so, I'll need even more details.
Stocks & Mutual Funds. When you sell stocks we must report your gain or loss. We need to know original costs. Brokers must provide this information to IRS. To avoid a mismatch I need to see the complete Form 1099- B from your broker.
Prepare Early. This will be a special year. We don't want to miss anything. Prepare carefully, and there are two benefits: (1) You'll see the maximum tax savings, and (2) my fee will be as low as possible.
We may even have a little time to plan for future savings! It's your money, but it takes both of us to keep as much as possible for you.
Do You Need To Send Form 1099?
Who must send Form 1099 to others? There are two cases:
- Businesses. You must report payments to others for services.
- "Nominee" amounts. If you are named as receiving income, but part of the income belongs to another, you are a nominee.
You must send Form 1099 to the other party by February 1. Copies are due at IRS by March 3.
Businesses. If you paid $600 or more to a person or business during 2013 you may need to issue a form. Applies to "business" expense only. You don't need to report payment for personal expenses or any payments made to a corporation.
Was any part of the payment for services? If so, you must report the total amount on Form 1099. Rents you pay to a manager (but not to the landlord) are excepted. Same if you pay for merchandise alone. Check your records for repairs, painters, consultants, builders and the like.
Get name, address, and Tax I.D. Number. Call or use Form W-9. If someone gives his/her name, get a Social Security Number (looks like 555-55-5555). If a business name is used, get an Employer I.D. Number (looks like 55-5555555).
Rental Managers. A property manager who runs your rental sends Form 1099 to you reporting the rents.
Nominees. Suppose you and your brother share a savings account. But, your Social Security number appears on the 1099-INT, even though half the income belongs to your brother. You are a "nominee". Limits here are much lower. If you pay $10 or more to another you should send a Form 1099 to the other party. -You use the same type of 1099 as you received, but you are filing as a "middle man".
Getting the Forms. I can help, or you can get forms from IRS and do them yourself. If you need my help, please call early! My tax season is hectic, and the February 1 deadline comes up quickly. If you need forms from IRS call 1-800-829-3676, or download them at www.irs.gov. You need both Form 1099 and Form 1096, which serves as a "cover".
2014 Inflation Adjustments
Each year IRS adjusts several tax items for inflation. We saw modest inflation this year. As a result, only small changes are in store for 2014.
Tax Rates. Consider a couple who always earn $70,000 each year and have one child. They're not keeping up with inflation! Filing a "short form", their tax bills between 2003 and 2013 dropped from $7,002 to $6,025, or about $100 per year. For 2014 they can expect an $85 decrease in their overall income tax.
Items with small inflationary change:
- Standard Deductions.
- Tax Rates and brackets.
- Deductions for children.
- Pension contribution limits.
- IRA deduction limits and- income levels.
- Mileage deduction rates.
- Wage base for Social Security.
- Alternative Minimum Tax.
- Social security benefits. It was announced in October that 2013 benefits will increase by 1.5%. But, your net check is reduced by Medicare premiums.
Some of these have already been announced. The rest will be known by the time we prepare your 2013 returns. If any of these are important for you, be sure to write down your questions. I'll do my best to provide details early next year.
New Laws. By January I should know whether the Federal "budget crunch" caused Congress to make last-minute changes. I'll do my best to inform you of items that might change your tax bill.
Got Everything We Need?
Here’s a list of thing most often forgotten. Compare it with you own list of missing information.
- Refinance. I need to see the settlement statement. Maybe it's best to bring all the paperwork.
- Sale of Stock. Brokers send Form 1099- B to show sale price. Look for a "Statement of Realized Gain/Loss". Without it, we need to do all the work. We need the original cost. Can you find the "buy" slip? A mutual fund sale requires a complete history.
- Buy/Sell Property. Settlement statement shows the details. Find it, or else gather everything.
- Estimated Tax Payments. I need amounts and dates. Look near April 15, June 15, and Sept. 15. In 2014 look near January 15.
- Social Security Benefits. Find the Form 1099-SSA. It shows the amount to claim. The amount put into your bank account won't do.
- Property Tax. Find the amount actually paid during the year on your home, other real estate, boats, and automobiles.
- Employer Reimbursements. We need the records. We can deduct the excess expenses.
- Work-Related Driving. Deductions for extra driving add up quickly. Review your work schedule and your calendar.
- Child Care Credit. We must report the full name, address, and I.D. number of the care providers, not simply the amount you paid. Some states even ask for the provider's telephone number.
- Contribution Receipts. All donations need records. Your cancelled check is OK for single gifts up to $250 - above this you also need the charity's receipt.: If you donated a vehicle I need to see Form 1098-C, or you will be limited to a $500 deduction.
- Special Events. Jot down information about a birth or death in the family, legal costs, special expenses for your job, or any unusual medical costs. You may have found a deduction, but you have to let me know about what changed this year. I try to ask a lot of questions, but I'm not a mind reader. Write down the questions, or you may forget and lose a valuable deduction.
Would you like to read a past issue. Please check out one of these issues:
Year End 2013