Ten Tips for Tackling Your Taxes
by Stephanie Feagan, CPA

Does the thought of gathering your records and preparing your tax return send cold shivers down your spine? Perhaps you're putting it off because you're afraid of an audit - what if you screw it up? What if you forget something and the feds come down hard on you? In my years spent in public practice, I've reached a comfort level with the IRS that I hope I can pass along to you. Granted, the IRS makes mistakes, just as every large organization does, but on the whole they want to be helpful and they want to be fair. If you put a face on the IRS, they are people, just like you and me, and they put their pants on one leg at a time, just like you and me. Nevertheless, having to answer inquiries from the IRS is a pain, and I've assembled ten tips for preparing and filing your return that will help avoid any undue interest from the IRS.

Double-check the accuracy of Social Security numbers.
First, as soon as you receive tax documents such as W-2s and 1099s, check the Social Security numbers to ensure the issuer used the correct number. If the number is incorrect, ask the issuer to send revised forms to both you and the IRS. According to the IRS, an incorrect number on a Form W-2 results in the return being categorized as "not processible", and any refund is delayed until the IRS obtains the correct Social Security number. When filling out your tax return, make sure you use the correct numbers for yourself, your spouse, and your dependents. The government uses Social Security numbers to check whether a child is claimed as a dependent by more than one person.

It's not that new math.
This seems like a no-brainer, but thousands of returns are scrutinized and changed every year for simple math errors. These can range from transposition errors to things like adding instead of subtracting and vice versa. Unless you use a computerized preparation program like Turbo-Tax, you should always go back and double-check your math. If you do use a tax program, go back and check for transposition errors.

Support unusually high charitable cash donations, and accurately report non-cash donations.
Be careful about claiming deductions for donations not in line with your income. If you report income of $40,000 and donate $10,000, you're a way cool human being, but the IRS is likely to want to know more. In such a case, you may want to include support documentation with your return. Also keep in mind that if you donate more than $500 in non-cash property, you need to fill out Form 8283, Non-cash Charitable Contributions, and attach it to your return. If your non-cash donation exceeds $5,000, you are required to obtain a written appraisal from a qualified appraiser that supports your information.

Have backup for every number on your return.
How you generate your income may increase the likelihood of your return being selected for audit. The IRS is well aware that self-employed workers have more opportunities to hide income and transform personal expenses into business deductions. If you are self-employed and file a Schedule C with your return, make sure that every number on the form has backup in the way of receipts. I frequently tell my nervous clients, unless you're cheating, you have nothing to fear. If you've reported all the income received during the year and deducted all legitimate expenses, what have you got to worry about? Don't stretch reality and write off your groceries, but do take all legitimate deductions. Just make sure you have backup for them.

Home is where the business is.
In line with the previous tip, if you are self-employed and operate your business from your home, be aware that this may invite IRS scrutiny. Although the rules governing who can qualify for the home office deduction were relaxed in 1999, they are still complex and apply to only a limited number of employees. You certainly should claim the home-based office deduction if you meet the requirements, but to make sure you do, read IRS Publication 587, Business Use of Your Home.

My dog ate it!
Yeah, maybe this worked in school, but the IRS won't buy it. Be sure to report all income on your return, and pay particular attention to income reported to you on Forms W-2 and 1099 because the IRS has the ability to match the amounts, and if they don't match, you'll be hearing from them. I'm frequently amazed when one of my clients gets a letter, adjusting their tax bill for some interest income we failed to report. I recently had a client who got a letter because he failed to report earnings on a state tuition program. This is the easy stuff, folks! It only becomes difficult if you get a tax document in the mail, then toss it in a pile instead of filing it for when you get ready to do your taxes. Keep all tax-related documents in one place, whether an actual file folder, a manila envelope, or one special drawer.

Get me to the post office on time!
Let's face it - taxes are one of the sucky things in life we'd all prefer to do without. But the chances of Uncle Sam repealing the tax laws are zero, so you may as well face reality and make things a bit easier on yourself. As soon as you have everything you need to prepare your return, or to hand off to a paid preparer, Just Do It! Waiting won't change a thing. In fact, procrastinating will make things worse. Not only will you fret over the final outcome - Will I owe more tax or will I get a refund? - you'll be less careful and more prone to mistakes the closer you are to the filing deadline. If April 15 looms large and you can't complete your return with any amount of accuracy, file Form 4868, which automatically extends the due date of the return until Aug. 15. If you have to extend, don't shoot yourself in the other foot and procrastinate again. Go ahead and prepare and file as soon as possible. A word of warning: An extension of time to file is not an extension of time to pay. If you owe more money, pay it in with the extension. Otherwise, you'll be subject to penalties and interest for every day after April 15 that the balance remains unpaid.

Show them the money!
If you owe money and your bank account's a bit on the anorexic side, you do have the option of paying with a credit card. If your credit card's maxed out and you have no other alternative, you can complete and file Form 1127 to apply for a six-month extension of time to pay. This option is generally reserved for people who can exhibit undue hardship, and I don't mean somebody who will have to forego a vacation to Hawaii. If you think six months won't be enough time, you can file Form 9465 to request an installment agreement. Check out the IRS website for more information. (Link following this article.) The bottom line: If you owe tax, you will pay it, one way or the other. Don't put it off. As soon as you become aware that you will owe, take all necessary steps to pay. Getting into debt with the IRS is an expensive proposition.

The Blame Game
If you pay someone to prepare your return and are subsequently assessed additional tax due to error or negligence, you may have some recourse against the preparer through the court system, but as far as the IRS is concerned, they don't care if you prepared it yourself, you had Uncle Ned do it for you, or you paid the best and brightest CPA in the United States to prepare it. You are responsible for every number on your return, and you say so when you sign it. Be absolutely certain you understand your return, and check the numbers before shoving it in an envelope and mailing it. Mistakes can be very costly regardless of who made them. You may have to pay an accuracy-related penalty if you underpaid your taxes because of negligence or disregard of rules or regulations or because you substantially understated your income. What's substantial, you ask? In the eyes of the IRS, underpayment is 10 percent of the tax required to be shown on the return or $5,000 - whichever is greater. The accuracy-related penalty is equal to 20 percent of the underpayment. Youch! Clearly, it pays to double-check the numbers!

File it under U, for Useless.
It doesn't actually matter where you file your tax documents so long as you can access them without having to move out of your house to locate where you left them. Copies of returns, along with supporting documents such as W-2s, 1099s, mortgage statements, and receipts, should be readily available in the event you receive a letter from the IRS, asking for clarification or further information, or informing you of your return's selection for audit. The IRS generally has three years to examine your return, but the limit increases to six years if the agency believes you underreported income by more than 25 percent. If you didn't file at all, or you filed a fraudulent return, there is no statute of limitations. To play it safe, keep your tax returns and documentation for six to ten years.

Most returns are selected for audit by an IRS computer-generated program that compares the deductions you are claiming to other returns in your income bracket. To arrive at a DIF (discriminate function) score, the formula also considers where you live, the size of your family, and how your income is earned. For example, if you were to report $60,000, live in an exclusive neighborhood with your family of six, and claim $15,000 in mortgage interest, the IRS might want to chat with you.

When it comes to the IRS and audits, the most important thing to keep in mind is honesty. If you prepare your return in good faith, if you make every effort to be accurate and honest, you have nothing to fear when Mr. Postman brings you a letter notifying you that your return has been selected for audit. Because you kept good records, claimed legitimate deductions and reported all of your income, you will gather your papers and report for your audit with very little stress. And remember, the agent on the opposite side of the desk puts his pants on one leg at a time, just like you!

For more information about income, deductions and filing your taxes, visit the IRS website at www.irs.gov. You can access forms and instructions as well as all IRS publications.

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Life Goals (things we want to do before we die)

On my life to-do list I have two big things left. I'd like to sell my books (both fiction and nonfiction) and take a long, long vacation in England. - Debra Holland

I actually came up with a list of more than 100 things I'd like to do in my lifetime, some are small goals, some larger. Among the bigger goals are visiting every unit of the National Park system, hiking the Appalachian Trail, tracing my family ancestry and seeing at least one of my books hit the New York Times bestseller list. - Trish Milburn

Design and build another house. Make the New York Times list. Visit Alabama, Tennessee, and Kentucky to see where my mother's family lived and finish their genealogy chart. - Lorelle Marinello

Sell at least ten books and see at least one made into a movie. Learn enough French and Italian to have halting conversations with natives where everyone smiles encouragingly. Refinish the basement to looks like a British men's club so Joe and I can sit in big leather chairs, sip our port and listen to jazz CDs while reading the New Yorker. I wouldn't be surprised if velvet dressing gowns were featured. - Kiki Clark

First of all, I want to say that I prefer to call these the "Big Goals I Want to Attain While I'm Still Alive!" Being a published novelist is at the top of my list. It's been a lifelong goal and one I'll continue to strive for. My husband and I have recently added a happy, healthy retirement to our list of Big Goals. Who knew that being
fifty-something would be this much fun? In 2004, I added two things my list of Big Goals Achieved. One was becoming successfully self-employed with my own communications business. I now have the best boss and the shortest commute in the world! My other achievement was becoming a New Yorker. Okay, I'm still not technically a New Yorker, but last July a very dear friend let me and my daughter use her Manhattan apartment. For two whole weeks, we got to be real New Yorkers,
with our own apartment and everything. We "did" Manhattan- from The Cloisters to the Statue of Liberty-and loved every hot, humid minute of it! - Lee McKenzie

Well, I managed to accomplish three of my long-term goals this year, so that leaves me in the situation of making use of those accomplishments. I finally made it to England. But alas, only for two weeks, and there is still so much to see, so I'm afraid I must go back. There are other places I really want to go. Tahiti, Fiji. The Mayan ruins of the Yucatan. Waterloo, and Spain and Portugal, to follow the Peninsular Wars. The second goal I accomplished this year was early retirement, leaving me free to write full time. So a major goal now is to not have to go back to work. A passable writing income would help. I am happy to have won my second Golden Heart. However I don't want to win a third. I want to make that big sale and become ineligible. And from there I want to keep on developing my writing career. Other than that, I want simply to live long and prosper, with my sweetie and my family. That worries me. I wish I'd do more about my health, including lose 20 pounds and keep it off. And more exercise wouldn't hurt. - Delle Jacobs

Three major things on my life to-do list: Find out something about my grandmother's family, see my name on a book cover and visit Ireland. - Pam Payne

To learn how to better manage my time. And (same as last year and the year before, etc.) to lose weight! To write at least two books. - Diane Perkins

When I was in my early twenties I made a list of the things I wanted to do before I died, and I've done most of them. Because I was in my twenties it was a pretty short list. I've flown in a hot air balloon, kissed a Bengal Tiger on the nose (okay, it was a carousel tiger, but sometimes you gotta be flexible) and I've made a difference in the life of a child. If the hot flashes are any indication, I probably won't be doing the children thing, but I'm going to be the best great-auntie I can be. I've climbed enough mountains in my professional life that Everest is no longer of interest. I'd like to write at least one book that people will want to put on their keeper shelf. - Karen Potter

Before I head off to the Great Beyond, I have a few selfish goals, and a few not so selfish. I will see Russia, buy a mountain cabin, make the New York Times bestseller list, meet Dan Fogelberg, and host a dinner party at Le Cirque in New York City. I will also teach an illiterate person to read, build another house for Habitat for Humanity, and sponsor a college education for a deserving person. - Stephanie Feagan

Win or at least final in the RITA Awards - Trish Morey

New Year's Resolutions

Get out of my writing cave more often and experience life. Be more conscious and careful of the food I'm putting into my body. - Lorelle Marinello

Finish some bigger home improvement projects, finish my women's fiction book, write two more category books, learn to use my FrontPage software and exercise on a regular basis. - Trish Milburn

Finish two books in 2005. - Kiki Clark

I resolved to quit smoking on New Year's Eve 1982. Eleven days later, I
did exactly that. I haven't touched a cigarette since, and for the past twenty-two years I haven't felt the need to make another resolution. - Lee McKenzie

Clean up and organize my office, then keep it clean for the entire year. Get into a regular exercise routine instead of doing it hit-and-miss. Find a job. - Pam Payne

To own a house on the beach, any beach. To live for at least three months in England. To make the New York Times bestseller list! - Diane Perkins

My New Year's resolution is to find the joy in every day and everything. Instead of dwelling on what's going wrong in my life, my goal is to embrace what is going well and let myself be happy about it. Focus on the positive, not the negative - Stephanie Rowe

Usually my New Year's Resolution is to lose some weight, and I always do. Unfortunately, I always gain it back. So...this year my resolution is not to regain the weight I lost! - Karen Potter

In the New Year, I resolve to stop biting off more than I can chew. I resolve to write more and procrastinate less. But mostly, I resolve not to fall into the black hole of despair when my last chick leaves the nest for college. - Stephanie Feagan

Lose weight, get fit and stay fit; be a better and more tolerant mother. - Trish Morey

To make it to round five of the American Title contest; to write four books; to write four articles; to exercise on a routine basis; to give up sodas. - Janice Lynn

To read last month's Top 10 article, click here

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