LOS ANGELES – Get your tax stuff together - now! But don't just listen to me: The San Fernando Valley Chapter of the California Society of Enrolled Agents, of which I'm a member, unanimously agrees that this is the month taxpayers should finish gathering their paperwork.
The biggest source of grumbling among the folks who prepare tax returns is having to chase after clients, calling repeatedly to get information that should be really easy for taxpayers to gather.
So, let's make everyone's life easier. What should you be gathering before you drop in for your annual tax appointment and gossip and hug-fest?
Here's where to start
Floyd Greenman, an enrolled agent in Chatsworth, Calif., says a good starting point is last year's tax return. Look over the list of dividends and interest on your Schedule B and make sure you've gotten your 1099s from all the banks and brokerages.
Your tax professional probably sent you an organizer that includes last year's numbers. It's a terrific tool to use. Not only will it help you get ready for this year's appointment, it may help you catch errors on last year's tax return.
For a complete list of what taxpayers typically miss, read last year's March to-do column. You'll find line-by-line information about things to include on your Form 1040.
Pertinent records online, or a phone call away
Remember, you can get a lot of information online these days. Your mortgage information will be there. Your credit card companies offer online access that often lets you print out an annual summary of your expenditures, or just a missing statement or two. Even your bank account information is online. Generally, you'll find at least three months of cancelled checks there, too. Anything older, you may have to pay the bank to locate for you.
Folks who have investments in pass-through entities, such as partnerships, S corporations or LLCs get an annual Schedule K-1 report. The K-1s contain a complete summary of all the income, expenses and deductions for you to use on your personal tax returns. Since the IRS doesn't require those businesses to file their tax returns before you do, you're apt to get those rather late in the year.
Joe Rosas, an enrolled agent with Telecraft Tax Services in Arleta, Calif., points out that if you can get at least a ballpark estimate of what they plan to include on those K-1s, you'll be able to make a reasonable stab at filing for your extensions and paying any balances due. Rosas recommends that you call the companies and have them send you the projected data.
The sooner, the better
One of the major national tax chains doubles its fees for tax preparation after March 15. In fact, many tax preparers offer fee discounts in the earlier part of the tax season, and their discounts disappear by March 15. So, check with your own tax professional to see whether you can pay less by getting into their office before March 15.
March 15 brings another two deadlines, says Northridge, Calif., enrolled agent Saroj Sharma. You have to file your corporate tax return, or put it on extension. And you have to decide whether you want to change your corporation to an S corporation or vice versa. This coming March 15 is your last opportunity to avoid the double taxation of a C corporation and become an S corporation. Or to switch out of S status to take advantage of the employee benefits that a C corporation may deduct.
Mel Schwarz, a partner in Grant Thornton's national tax office in Washington, D.C., offers an interesting suggestion for business property owners: Examine your capital asset depreciation methods. "Catch-up" deductions are possible on under-depreciated existing assets. You may be able to write off 100 percent of the under-depreciated amount in the current tax year without amending past returns by filing an automatic change in accounting method using Form 3115.
It may be costly to get the valuations you need to make this work. But, doing this can save you thousands of dollars on your 2006 tax return and give you an unexpected windfall. See related story.
Get your bookkeeping done
You no longer have the excuse that accounting software is too expensive. You can get free basic bookkeeping software from both Intuit and Microsoft. Intuit offers a free edition of QuickBooks' Simple Start program. See the Intuit offer.
Microsoft offers a free version of Office Accounting Express. See the Microsoft offer.
Naturally, if you need anything more complex, you'll need to pay for software. But these tools can get you started quickly.
Oh yes, and while you're catching up with last year's bookkeeping, you may as well bring it up to date. Doesn't it feel great to be caught up?
Eva Rosenberg is the founder of TaxMama.com and an enrolled agent licensed to represent taxpayers before the IRS. She is the author of the book "Small Business Taxes Made Easy." Reach her at firstname.lastname@example.org.
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