TAX SEASON IS HERE – ARE YOU READY?
If you’re like most people, you’ve probably had some experience with getting your taxes done just before the clock ticks down on April 15. Of course, it’s human nature to put off tasks that aren’t much fun, but last- minute tax returns often lead to stress and mistakes – some of which can be costly. That’s why you’ll be doing yourself a favor by starting your tax preparation early.
What can you do to get off to a good start this tax season? Here are a few ideas:
Plan how you’ll do your taxes.
If you’re going to do your taxes yourself, you have two basic options. First, you could take the old-fashioned approach and use paper, pencil and calculator. Second, you could use a commercial software package. A good program will walk you through the steps you need to take, provide you with help if you get stumped, do all the math and show you deductions that you may not have noticed.
Consider using a CPA.
You may want to hire a certified public accountant (CPA) to do your taxes. The expense may be worth it, particularly if you have a complex tax situation. An experienced CPA, who is obviously well informed on changing tax laws, can help make sure you get all the deductions and other breaks that you’re entitled to. Plus, over time, your CPA will become familiar enough with you to improve your tax picture on April 15.
Organize your tax-related documents.
No matter which method you choose to prepare your taxes, you’ll still need to gather all the key information. You’ll find it very useful to set up files for the various tax-related categories: charitable contributions, interest paid, medical expenses, union dues, tax preparation fees. If you’re self-employed, make sure to keep the receipts for all business-related expenses.
Review last year’s returns.
By going over last year’s tax returns, you’re likely to get some ideas on deductions and “carry forwards” that you’ll want to look at this year. For example, if, in 2001, you incurred capital losses that exceeded the $3,000 write-off limit against ordinary income, you can carry these losses over to your 2002 tax return and again apply them in your favor.
Become familiar with tax-law changes.
The Economic Growth & Tax Relief Act of 2001 makes far-reaching changes in the tax system. For starters, as of July 1, 2001, you may have entered a lower tax bracket. Plus, your child tax credit rises from $500 to $600, effective in 2001. Other changes – such as increased contribution limits for IRAs and 401(k) plans – go into effect in 2002. Your tax adviser can inform you about any tax changes that may affect you. You can also learn more about tax changes by browsing through the various Web sites devoted to financial matters.
Get some help from Uncle Sam.
Even if you’re doing your taxes on your own, you’re not really alone. The Internal Revenue Service (IRS) can actually be quite helpful in answering your tax-related questions – if you know where to look. To obtain a list of publications produced by the IRS, call (800) 829-3676 and follow the prompts. You can have forms sent to you via the mail, Internet or fax. To get detailed information on dozens of tax topics, call the IRS’ Tele-Tax line at (800) 829-4477.
By taking these few simple steps, you can improve your tax season outlook and maybe even your outcome.
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