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Personal
Tax Preparation Checklist
This
is a partial list of the information needed to prepare your personal
tax return.
| 1) |
A
copy of last year's tax return you filed — new clients only.
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| 2) |
Social
security cards and birth certificates for every dependent
you are claiming on your tax return. The IRS will not allow you
to claim for a child that is receiving public assistance. Two
persons will not be allowed to claim the same child in the same
tax year [IRC Section 151(d)(2)]. Child support payments are not
taxable to the recipient and they are not deductible by the payor
[IRC Section 71(c)(1)]. You can receive a tax credit if you paid
a baby sitter or day care center to care for your dependent child
under age 13 [IRC Section 21 and regulation 1.44A-2(a)]. To be
eligible for the credit, you must give the government the day
care provider's full name, full address, social security number
or business identification number, and the amount you pay the
provider.
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| 3) |
Forms
W-2 — Wage statements from every employer you worked
for during the year. Contact every employer who didn't give you
a Form W-2 by January 31.
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| 4) |
Estimated
tax paid — Money order receipts and cancelled checks
used to pay federal and state estimated taxes. State tax you
owed and paid as back taxes or amount you owed and paid the
state when you filed your last year's state tax return(s) are
tax deductible. Please show proof of payment when you prepare
your next tax return.
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| 5) |
Forms
1099-MISC — If you are a self-employed independent contractor
working for a company that you do not own. Expenses you are entitled
to deduct will depend on the kind of employment you are involved
with.
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| 6) |
Form
1099-INT (interest on savings account) and 1099-DIV
(dividends from stocks and bonds) — from your bank, credit
union, mutual fund companies, where you own and sold shares/stock.
If you sold stocks during the year, you will have to report the
short and long term capital gains and losses you incurred. Investment
expenses you paid, including the interest you paid on your trading/margin
account are tax deductible. Contact your bank and other financial
institutions for the necessary information if you do not receive
documentation from them by January 31.
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| 7) |
Forms
1099-R — If you have retirement income from pensions,
annuities, IRAs, or other pension distributions or if you rolled-over
your pension into another retirement plan. Form SSA-1099
— if you receive social security benefits.
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| 8) |
Form
1099-G — If you receive state unemployment. Contact your
state unemployment office if you did not receive this form by
January 31.
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| 9) |
Form
W-2G — lottery, gambling winnings/losses (IRC Section
165(d). You can deduct gambling winnings up to the amount of gambling
losses you incurred during the tax year provided you have all
the losing tickets to substantiate your claim.
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| 10) |
Retirement
plan deduction IRA — Maximum tax deduction for contributions
to an IRA is $4,000 for tax years 2005-2007 and $5,000 for tax
year 2008. You will be charged 6 percent excise tax for contributing
more than the legal amount to the plan. You will be charged
a 10 percent penalty for early/premature withdrawal before reaching
age 59½. However, you may borrow up to $10,000 from your
IRA to pay medical bills or purchase your first home without
paying a penalty.
Keogh
— A self-employed individual can contribute up to $13,000
in 2004 and $14,000 in 2005.
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| 11) |
Form(s)
1098 for residential and rental property — From every
bank or mortgage company you paid during the year. The mortgage
interest, property tax, and points are huge tax breaks. If you
did not receive a form 1098 statement, then call the bank or
mortgage company for the information. You must bring the actual
figures to the interview. Tax preparers are not allowed to use
estimates of these amounts on your tax return.
For
rental property — You must report the amount of rent
you actually received for each property during the year [IRC
Sections 61(a)(5), 109 and 856(d)(1)] plus an itemized list
of rental expenses you paid during the year for each property
(IRC Sections 163, 164, and 212), such as mortgage interest,
property tax, school tax, county tax, water, gas/oil, electricity,
insurance, legal and eviction fee, advertising, extermination,
cleaning and maintenance, carpet, management fee, and travel
to the property. Minor repairs for plumbing, electrical, and
carpentry are deductible in full in the year paid (Treasury
regulation 1.162-4). Equipment and capital improvement such
as boilers, refrigerators, stoves, central air conditioning,
new bathrooms, complete renovation of apartments and kitchens,
including structural improvements made to the property such
as a new roof, sidewalk, driveway, garage, fence, and basement
are depreciated and deducted annually over a period of 3-15
years [IRC Sections 167, 168, and 1016(a)(1)]. Expenses attributed
to your personal use of the property are not deductible [IRC
Sections 262 and 280(A) and treasury regulation (regs) 1.280A-3(d)(3)].
Lodging, meals, and utilities that you furnished to a Super
and his dependents are treated as furnished as a condition of
employment. These amenities are tax-free to the Super. They
must not be included in his gross income and they are not deductible
by you, the employer [IRC Section 119(a)(2)].
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| 12) |
Record(s)
of sale and purchase of real estate — You do not have
to pay tax on $250,000 or $500,000 of profit you obtain from
the sale or destruction of your principal residence by hurricane,
tornado, treats of condemnation, or eminent domain if you own
the property for five years and live in it for two years. You
can claim this exclusion once every two years (IRC Sections
121 and 1033). If your principal residence was destroyed or
condemned, you may have to purchase a replacement property within
two years to offset recognized gains. If a lender has foreclosed
on your property, your gain or loss for tax purposes is the
difference between the net proceeds the lender received at the
auction and your adjusted basis in the property [IRC Sections
856(e)(1) and 1001]. Your attorney or insurance company should
give you copies of these settlement papers. Take the documents
along with you at your tax interview.
If
you sold a rental/commercial property, you may have to pay capital
gains tax on the profit or on the amount of the depreciation
taken (IRC Sections 1231, 1245, & 1250). However, you can
avoid paying tax on capital gain and instead pay tax on ordinary
income if you sold your rental property to a relative (IRC 1239).
If you are not qualified to use this method, then you may use
the installment sales method to spread the capital gains and
your overall tax burden over several years if you received a
downpayment from the buyer and you hold a note or second mortgage
for the balance of the sale — Seller finance (IRC Section
453).
You
may also qualify for non-recognition of capital gains tax through
a Section 1031 like-kind exchange transaction. This tax strategy
allows you to reinvest your entire profit into a new property
without paying capital gains tax. Section 1031 exchange must
be completed within 180 days (six months) after the transfer
of the exchange property.
It
is important that you retain the services of a real estate attorney
to construct your transactions within Section 1031 exchange
rules because you can be audited and indicted for tax evasion.
You can deduct a maximum loss of $3,000 on your tax return every
year if you paid a contractor or developer to build your house
and you and other homebuyers lost your money because the contractor
filed bankruptcy. This is a non-business bad debt [IRC Section
166(d)(1)(B)]. To qualify for this non-business bad debt, you
must show proof of contract, original cancelled check(s) and
a letter from the bankruptcy court or from the contractor's
attorney.
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| 13) |
Medical
and dental expenses (IRC Section 213) — Expenses you
paid for yourself and your dependent(s) that were not reimbursed
to you by your insurance, including co-payments and insurance
premiums you paid. You can deduct 18 cents per mile for traveling
to the hospital or to see your doctor. The amount you paid for
cosmetic surgery is tax deductible if the surgery is necessary
to ameliorate a deformity arising from, or directly related to,
a congenital abnormality, a personal injury resulting from an
accident, trauma or disfiguring disease. Life insurance premiums
you paid as a beneficiary under the policy is not tax deductible
[IRC Section 264(a)(1)]. Life insurance proceeds you received
as the beneficiary as a result of the death of a family member
who owned the policy is not taxable to you [IRC Section 101(a)(1)].
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| 14) |
Structured
settlement — Proceeds for personal injury or sickness
(compensatory damages) received whether by lawsuit or agreement
and whether as a lump sum or as periodic payments are not taxable
[IRC Section 104(a)(2)]. However, amounts you received for exemplary/punitive
damages are included in gross income and are taxable under IRC
Section 61.
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| 15) |
Charitable
contributions (IRC Section 2522) — Amount deducted from
your paychecks by your employer, pledge cards, and written acknowledgments
from the charitable organization. According to the IRS, you are
entitled to deduct the appraised value for furniture and
vehicles you donated to a charitable organization, but no more
than $500 for property and clothing that were not appraised. If
you perform voluntary work for a charitable organization, you
can deduct traveling expense of 14 cents per mile plus toll and
parking. The IRS would want to see receipts for the deductions
you take.
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| 16) |
Job
related expenses (IRC Sections 162, 212, and 274) — The
cost of commuting to and from work is considered a personal expense
and it is not tax deductible. However, you can itemize and deduct
job related expenses that you PAID (cash and accrual basis taxpayers)
or INCURRED (accrual basis taxpayer only) to operate your vehicle
from your place of business to visit customers, patients, and
other job sites. Be sure to have written approval from your employer,
records for mileage, gas, lease, insurance, repairs, parking,
and tolls before you itemize these expenses. The alternative is
to play it safe by taking the standard deduction of 44.5 cents
per mile that the IRS allows you. You can also deduct expenses
you paid for job related education, including continuing or higher
education to maintain your skills, telephone calls to patients
or job, professional dues, textbooks, software, stationery, supplies,
travel from work to school, travel between jobs for taxpayers
working two or more jobs, uniforms, safety equipment, instruments,
tools, safety garments, a maximum of $25 for business gifts to
an individual, and interest paid on your student loan, etc.
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| 17) |
Moving
expenses (IRC Section 217) — Expenses not reimbursed
to you by your employer such as house-hunting trips, moving household
goods, personal effects and lodging in the new location are above-the-line
items and are tax deductible whether or not you itemize your deductions
[IRC Section 62(a)(15)]. You can deduct 18 cents per mile if you
drive to the new location. Moving expenses, downpayment or closing
costs on your new residence that your employer reimburses you
for are taxable income under internal revenue code section 82.
However, your employer may exclude this amount from your gross
income by treating it as a fringe benefit qualified moving expense
reimbursement under IRC Section 132(a)(6). You may deduct unreimbursed
moving expenses if your new job is more than 50 miles further
away from your old residence and you were employed full time in
the new location for at least 39 weeks (9.75 months) during the
12 month period immediately following your arrival in the new
location [IRC Section 217(c)(2)(A)]. The 39 month rule does not
apply to you if you were a full time employee with your company
and were transferred to a new location as a condition of employment
that benefits your employer.
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| 18) |
Casualty
and theft losses (IRC Section 165) — You may be able
to deduct part of the money you lost in a failed financial institution
or loss caused by robbery, vandalism, fire, or storm that was
not reimbursed by insurance. The IRS requires you to provide a
police report and insurance claim forms to substantiate proof
losses.
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| 19) |
Alimony
paid or received [IRC Sections 61(a), 215(a), and 682(a)]
— If your divorce decree or separate maintenance agreement
requires you to pay alimony and child support and you pay less
than the annual amount, your payment will first be applied to
child support. The balance of your payment will be applied to
alimony. Alimony
received is taxable to the recipient/former spouse. It is deductible
from gross income by the payer/former spouse. It is an above-the-line
item, therefore the payer spouse does not have to itemize deductions
to be allowed the deduction.
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| 20) |
529
Plan - College Choice Tuition Savings Anybody can contribute
money to this plan to pay for any child's college tuition in the
future. The child (or children) does not have to be the taxpayer's
dependent. Taxpayers filing single or head of household can contribute
a maximum of $5,000 per year and married persons filing a joint
tax return can contribute a maximum of $10,000 per year. This
deduction is allowed by New York state only. It is not allowed
by the Federal. This is an above-the-line item of deduction on
New York state tax returns, therefore taxpayers do not have to
itemize their expenses to take a deduction for the amount they
contributed.
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| These
are some of the tax deductions the government has allowed individual
taxpayers. Tax rules and deductions are subject to change without
notice. Please call (718) 677-4006 to make an appointment for
office consultation to discuss your current tax situation or call
the IRS at (800) 829-1040. |
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