Your 2005 Records -
Easy 4-Step Preparation
Want to save money? Don't wait until the last minute. Review your records in several short stints instead of one long marathon.
1) Time and Place
You don't need much time. Give it 10 minutes each week and half an hour to finish up.
Find a place to keep your records. Gather last year's tax return, a few envelopes, your check registers, a scratch pad, and a calendar.
2) Looking Back
Think back on 2005. A quick look at last year's return will remind you of the things you need to collect.
Calendar and Register. A calendar and your check register will help. Look for events or deductions that affect your taxes. Keep notes on any items that jog your memory.
3) Watch Your Mail
Watch for those envelopes saying "Important Tax Information".
W-2's. Read each one before putting it away. If it looks wrong contact your employer.
1099's. You get 1099-INT or 1099-DIV for any account paying interest or dividends. Did you find all of them? Keep notes.
Other 1099's. A real estate sale is on Form 1099-S. For stock sales it's 1099-B. Pensions are on 1099-R. There are several others.
Form 1098. The mortgage interest you paid is on Form 1098. If you have a private loan, get your payment book. If your lender was the seller, you need the name, address, and tax I.D. number. Form 1098-T reports tuitions paid - these can lead to credits and/or deductions. Student loan interest is on Form 1098-E. If you donated a vehicle to charity you'll see new Form 1098-C.
Other Income. You may see forms for unemployment benefits, state tax refunds, prizes, awards, or gambling winnings.
Partnerships, etc. Forms K-1 from partnerships, trusts, estates, and corporations arrive later. We can do the rest of your return early. Mail these forms to me when they arrive.
After January. Most forms are sent out by January 31. In February figure out what's missing. Missing a W-2? Grab your phone! Contact the employer. If you can't locate the employer, find your pay stubs.
Late Information! If some information arrives late, mail it to me. If receipts for deductions are missing, make a list of your best recollection, sign and date the list, and keep it with your records. This can help if you are audited.
4) Weekly Review
This takes 5-10 minutes. How's your pile looking? Check against your list of missing items. Take a quick look at a calendar. It may help you recall a deduction you forgot.
Those few minutes you spend over several weeks will be more helpful than one long session. It's surprising what details you will remember if you give time a chance to help you.
Final Review. Put all your information in order. Check your list to be sure it's all there. If there are last-minute questions, write them down.
Double Win! There are a couple of bonuses you collect for being well-prepared:
1) Your effort pays off in the form of tax savings.
2) Good organization makes my fee as low as possible. I hope we have extra time for planning. I'd like to see you save even more next year!
Got Everything We Need?
Here's a list of things most often forgotten. Compare it with your own list of missing information.
Refinance. I need to see the settlement statement. Maybe it's best to bring all the paperwork.
Social Security Numbers. We need them for each filer and dependent. Without them your return can be rejected.
Estimated Tax Payments. If you paid estimates, find the exact amounts and dates. In 2005 look near April 15, June 15, Sept. 15. In 2006 look near January 15.
Sale of Stock. Brokers send Form 1099-B to show sale price. I need the original cost. Can you find the "buy" slip? A mutual fund requires a complete history.
Sale of Property. Settlement statement shows all information. Find it, or else gather everything.
Social Security Benefits. Find your Form 1099-SSA. It shows the proper amount to claim. The amount is different than the money you collected.
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 claim the excess expenses.
Child Care Credit. We must report the full name, address, and I.D. number of care providers, not simply the amount you paid. Some states even ask for the provider's telephone number.
Contribution Receipts. For single gifts of $250 or more you need a receipt. The canceled check is not enough. This is also true for non-cash contributions. For donation of a vehicle you must have Form 1098-C or be limited to a $250 deduction.
Business Equipment. Check business records to be sure you can distinguish major equipment from other business supplies.
College Tuition. You got Form 1098-T showing tuitions paid. These can lead to valuable tax credits. Bring it along.
Special Events. Jot down information about a death in the family, legal costs, expenses for your job, or any unusual medical costs. You may have found a deduction, but you have to let me know what happened. 1 will try to ask a lot of questions, but I'm not a mind reader. Write the questions, or you may forget and lose a valuable deduction.
Do You Need To Send 1099s?
You may need to send Form 1099 to someone.
There are two cases:
- Business/Rental. 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 issue Form 1099 to the other party by January 31. Copies are due at IRS by February 28. There are penalties for not sending them!
Business/Rental. If you paid $600 or more to anyone during 2005 you may need to issue a form. Applies to "business" expense only - payment for personal expenses need not be reported. Nor do you need to report payments 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 l.D. Number. Call or use Form W-9. If someone gives his/her name, get a Social Security Number (like 555-55- 5555). If a business name is used, get an Employer l.D. Number (like 55-5555555).
Rental Managers. A property manager who runs your rental sends Form 1099 to you reporting the rents. Ask if the 1099's for service people were sent. The law here is not clear, so play it safe. Ask if they issued a 1099 to themselves for what you paid them. If not, you must do it!
Nominees. Limits are lower. If you pay $ 10 or more to another, you may need to send the form. You file 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 January 3 1 deadline comes up quickly. If you need forms from IRS you can reach them at 1-800-829-3676, or download forms at www.irs.com. You'll need Form 1099 and Form 1096.
Energy Credits Valuable Benefits in a Confusing Package
The Energy Policy Act of 2005 is a massive piece of legislation. It has dozens of tax breaks for individuals and small businesses. Most of the provisions are effective only for 2006 and 2007.
Residential Credits. Up to $500 tax savings over a lifetime is given for installing insulation, windows, doors, and skylights. They must meet certain efficiency standards. The credit is 10 of the cost of the items. There are credits for certain furnaces, heat pumps, and air conditioners. These must meet certain specified energy efficiency standards. Expect manufacturers to list the information on new products.
Small Businesses can earn credits for buying certain energy efficient refrigerators, dishwashers, clothes washers and dryers. There is high- speed write-off for certain energy efficient building improvements. There are more credits for solar energy installations.
Hybrid Cars - Take a Chance. There are a group of credits for the "Qualified Clean Fuel" vehicles. Alternative fuel vehicles, new "lean- burn" vehicles, and the popular hybrids are covered.
Hybrids have both a gasoline and an electric motor. They currently qualify for a tax deduction of $2,000. In 2006 purchaser can earn credits. (A deduction lowers the income subject to tax, but credits reduce the tax itself.)
Credits for hybrids are confusing. There are two credits, which are combined. Each part requires information from the carmaker.
First is a "fuel economy" credit, dependent on measures of economy. This credit ranges from $400 to $2,400 as fuel economy increases.
Second is a "conservation" credit ranging from $250 to $1,000 as the estimated lifetime fuel savings rises.
Snags. Both credits require information from the manufacturer. Credits are reduced once the manufacturer sells 60,000 of the particular vehicles. For 2005 Toyota says their Prius sold 50,000 before midyear. The new credit is available until the end of the calendar quarter in which the sales target of 60,000 is met. Then the credit is reduced to 50 for the next quarter, then to 25 for a couple of quarters. When it's over, it's over. Lastly, the credit can be lost to the Alternative Minimum Tax for higher income folks.
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