Even some
taxpayers with complex returns do the “shoe box drop”when meeting with their tax
preparer during filing season. But simply handing your preparer a pile of
receipts and records will cost you two ways: you’ll spend more money on the
tax-preparer’s fee and you’ll likely pay more income taxes than necessary.
Advice:
Put your
tax-return preparer in the best position to help you. You’ll save time and money
by following these five steps before you meet with your preparer this year:
1. Organize
your records. Don’t
expect your preparer to unravel your collection of receipts, credit-card slips
and other paperwork. Arrange for a meeting early in tax-return season to cover
all the bases. Then provide the requested information and documentation in a
neat and logical order.
Tip:
In that initial
meeting, bring along relevant articles clipped from Research Recommendations. Pinpoint the tax strategies you think could be used
on your 2005 return.Work with your preparer to start planning now to minimize ’06
taxes.
2.
Don’t assume the tax pro recalls all of your personal circumstances or any recurring
quirks. Give him or her a quick refresher. Most important: Check to see if items
carried over from your 2004 return—capital losses, net operating losses,
passive activity losses, etc.—will be allowed on your 2005 return.
3.
Report all security transactions.This is vital info your tax pro will need to complete
your return. Sometimes, a few trades might slip between the cracks,especially if
you have multiple transactions involving mutual fund shares.Provide your tax
return preparer with all1099s you’ve received.
Remember that
transferring shares within the same “family” of mutual funds is a taxable event. Don’t
forget to include these transactions.
4.
Support your basis adjustments. If you sold securities in 2005, you owe tax on the
difference between the sales price and your basis. Make sure you provide all the
documentation for adjusting your basis. Otherwise, you might overpay the actual
tax bill.
Typically, mutual
fund distributions of dividends and capital gains are automatically reinvested.
If you don’t account for taxes previously paid on those amounts,you’re paying
Uncle Sam twice on the same gain or dividend!
Example:
You bought mutual
fund shares years ago for $10,000 and sold the min 2005 for $15,000. In the
intervening years, you’ve paid tax on $2,000 in reinvested dividends and capital
gains, so your adjusted basis is $12,000 ($10,000 original cost plus $2,000). So
your taxable gain from the 2005 sale is only $3,000 ($15,000 minus adjusted basis
of $12,000), not $5,000.
5.
Combine business with personal.Don’t treat your personal tax return as if it exists in
a vacuum, especially if you own a pass-through entity (e.g., a partnership or S
corporation) or have other business interests. One is dependent on the other. It’s
typically best to employ the same preparer (or firm) to handle your business and
personal returns.
Tip:
The deadline for
calendar-year corporate tax returns is March 15. So you’ll have to move faster if
a business is involved or extend your filing deadline
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