J. William Seabrooke CPA P.C.

It will soon be time to begin work on the preparation of your 2010 tax returns.  When I worked for a previous employer we shared a common mantra – “While we shoot from the hip around here, we often shoot ourselves in the foot first!”  Americans are certainly “results oriented” and like to “cut to the chase” as quickly as possible.  While this creed is certainly admirable, there are many activities and tasks for which this just doesn’t make sense, i.e. major surgery, going to the altar for marriage, and your tax return preparation! 

There are ten “Tax Tips” that are provided below in this blog, I’d like to add five more which are equally as important:

1.  Review last years (2009) tax return before you start on your 2010 return – with some exceptions (moves, sale of your primary residence, divorce, etc) the content of your current tax return is probably very similar to the previous year.  Look it over carefully, make notes and observations that will be applicable for the past year;

 2.  Review all of  the tax law changes for the current tax year – review IRS Publications 17 (Your Federal Income Tax for Individuals) and 553 (Highlights of Tax Law Changes).  Also review your state tax law changes if your state has an income tax.  Determine how these changes will affect your tax return.  If you are uncertain, contact the IRS (1-800-829-1040 or http://www.irs.gov) or your tax return preparer.  Be sure that you fully comprehend all of the provisions that will affect your tax return(s) before you start to prepare your return;

3.  Contact a tax return preparer – if your tax situation became more complex last year or if you are not comfortable in your comprehension of the tax laws, contact a tax return preparer.  Even if you use a preparer you are still liable for the completenesss and accuracy of your tax return.  However, you will be assisted by someone who has a greater knowledge of the income tax laws and their requirements.  Additonal complexities present themselves in situations such as a) claiming others as dependents, b) a divorce, c) disposition of stock options, d) sale of a personal residence, e) moving expenses, or f) sales of investments.

4)  Acknowledge technological advances – through advancements in technology the IRS will know most (if not all) of the amounts and sources of your income and deductions before you ever file your tax return.  Don’t waste your time thinking of clever approaches to under-reporting your income or overstating your deductions;

5)  Self Prepared or Tax Preparer? – consider preparing your own tax return if you understand all of the applicable tax laws and the specific requirements for preparing your own tax returns.  You should also use an excellent tax return software (i.e. TurboTax) and by all means e-file.  However, even the best tax software on the market can not compensate for a failure to have all of the required knowledge of the tax laws.  If you have doubts, contact a tax professional or the IRS.  In most cases you can obtain the answers to your questions and then prepare your own return(s). If you still are not completely confident, spend the extra money to have a tax return preparer do the work for you.  Filing an amended tax return (i.e. IRS Form 1040-X) is not very difficult.  However, a tax return audit can be a very unpleasant experience.  Ignorance of the tax laws is usually not a valid defense!

Additonal “tax tips” from the IRS follows:

Top 10 Tax Time Tips 

It’s that time of the year again, the income tax filing season has begun and important tax documents should be arriving in the mail. Even though your return is not due until April, getting an early start will make filing easier. Here are the Internal Revenue Service’s top 10 tips that will help your tax filing process run smoother than ever this year.

1. Start gathering your records:   Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support income or deductions you’re claiming on your return.
2. Be on the lookout :  W-2s and 1099s will be coming soon; you’ll need these to file your tax return.
3. Use Free File:   Let Free File do the hard work for you with brand-name tax software or online fillable forms.  It’s available exclusively at http://www.irs.gov.   Everyone can find an option to prepare their tax return and e-file it for free.   If you made $58,000 or less, you qualify for free tax software that is offered through a private-public partnership with manufacturers.   If you made more or are comfortable preparing your own tax return, there’s Free File Fillable Forms, the electronic versions of IRS paper forms.  Visit www.irs.gov/freefile to review your options.
4. Try IRS e-file:   After 21 years, IRS e-file has become the safe, easy and most common way to file a tax return.  Last year, 70 percent of taxpayers – 99 million people – used IRS e-file.  Starting in 2011, many tax preparers will be required to use e-file and will explain your filing options to you.  This is your chance to give it a try.  IRS e-file is approaching 1 billion returns processed safely and securely. If you owe taxes, you have payment options to file immediately and pay by the tax deadline.  Best of all, combine e-file with direct deposit and you get your refund in as few as 10 days.
5. Consider other filing options:  There are many different options for filing your tax return.  You can prepare it yourself or go to a tax preparer.  You may be eligible for free face-to-face help at an IRS office or volunteer site.    Give yourself time to weigh all the different options and find the one that best suits your needs.
6. Consider Direct Deposit:   If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check. 
7. Visit the IRS website again and again:   The official IRS website is a great place to find everything you’ll need to file your tax return: forms, publications, tips, answers to frequently asked questions and updates on tax law changes.
8. Remember this number: 17:   Check out IRS Publication 17, Your Federal Income Tax on the IRS website.   It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.
9. Review! Review! Review!   Don’t rush.   We all make mistakes when we rush.Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.
10. Don’t panic!   If you run into a problem, remember the IRS is here to help.   Try http://www.irs.gov or call toll-free at 800-829-1040.