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Expecting an income tax refund? Then don't put off filing your return. Sure, there may be some good reasons to wait a bit longer, such as you're missing a form or you need to search for the right receipts. But letting the federal government hold onto your money because you're intimidated by the 1040 doesn't make much sense. Especially because there is more help than ever available to taxpayers.
Of course, if you owe taxes, what's the rush, right? Use all the time between now and the April 15 tax-filing deadline to find ways to trim your tax bill. (See our Taxopedia on What's Deductible.)
Regardless of whether or not you owe Uncle Sam, this Tax Guide will help you get ready to file your tax return, and point you to useful resources about tax deductions and tax forms.
- Paperwork you'll receive
- Records to dig up
- Resources for do-it-yourselfers
- When you need to hire a pro
Paperwork you'll receive
All of the required tax forms from employers, brokers, mortgage companies and others must arrive by January 31. Find a place for your tax records as you receive the relevant documents listed below. Also, as these arrive, review them for accuracy.
Common forms most people receive include:
- W-2 from employers reporting income and taxes withheld throughout the year.
- 1099-MISC if you've done any freelance work.
- 1099-DIV from mutual fund companies and brokerage firms reporting dividends paid and distributions made.
- 1099-INT from banks reporting interest income.
- 1098 from your mortgage company reporting the interest you've paid for the year.
See Your Tax Form Checklist for information about additional forms you may need to receive.
If you're still missing any of these forms, first call the employer, investment company or bank. If that doesn't seem to help, call the IRS at 800-829-1040.
Records to Dig Up
Next, start to assemble your own records.
Even if you owe taxes, it's a good idea to start organizing early. You certainly don't want to forget a vital deduction because you rushed through your documents at the last minute.
If you're self-employed, gather receipts for:
- Your business phone calls
- Mailing and copying expenses
- Equipment purchases
- Transportation to business meetings
- Professional licensing fees
- Other expenses you can write off
For more information, see IRS Publication 535, Business Expenses.
If you have an office in your home, find the receipts for the utilities and records of your mortgage or rent payments. You may be able to deduct a portion of these costs if you qualify. See IRS Publication 587, Business Use of Your Home for more information about the rules.
If you've had a lot of unreimbursed medical expenses, it's also worthwhile to tally your receipts (transportation costs to medical treatments count, too) and see if you qualify to deduct any of those costs this year. These expenses are only deductible to the extent they exceed 7.5% of your adjusted gross income. See more on Deductible Medical Expenses in our Medical Taxopedia. Also, for detailed information, see IRS Publication 502 Medical and Dental Expenses.
Also, track down canceled checks and receipts for all charitable contributions. If you've given more than $250, you'll need a receipt as well. If you've given property worth more than $5,000, you will need documentation from professional appraisal.
You can no longer deduct the fair market value of a car when you donate it to charity. In most cases, you can only deduct the amount of money the charity receives when it sells the vehicle.
See our taxopedia for Charitable Deductions.
If you've sold stocks or mutual fund shares, you'll need to dig up your records showing how much you originally paid for the shares and any dividends that you've reinvested -- otherwise, you end up paying more in taxes than you owe. It can be in incredibly complicated to figure out your tax basis if the company has gone through any mergers or spin-offs. In that case, you might be able to get help from your brokerage firm or from the company's investment relations department. For more information, see Finding a Stock's Cost Basis.
Resources for do-it-yourselfers
Taxpayers have more free resources than ever before. If you have a computer and an Internet connection, you not only have access to the complete library of IRS Forms and Publications, but also advice from experts, discussion boards, and, best of all, a bevy of free online software and e-filing choices. Here's a quick list of what you can find, right here on Kiplinger.com:
- Common tax forms for individuals and businesses.
- Kiplinger's Taxopedias, your quick guide to what's deductible and what's not.
- Kiplinger.com Community's Tax Forum, where you can share questions and answers with other readers.
- Information on state taxes with links to state tax agencies.
- Kiplinger's Tax Glossary.
And when you're ready to put all your newfound knowledge to use, you can prepare and file your taxes electronically using .
E-filing versus tax software. If you earned $54,000 or less in 2007, you can qualify for Free File, an online tax preparation and filing service launched by the IRS in partnership with some of the biggest names in tax software -- including H&R Block, the makers of TaxCut, and Intuit's TurboTax.
Although bare bones, the online versions are basically the same as the software that comes in a box, with a couple of major exceptions: First, no price tag. Second, there is no added fee for electronic filing.
Online preparation may not be for everyone, though. If you have a dial-up connection, doing your taxes on the Web could become a time consuming ordeal and you may be better purchasing tax software, which is also deductible. Most software packages include advice and features you won't find online. For example, TurboTax Deluxe ($29.95), looks for deduction opportunities as you go and shows you how to qualify for about any deduction.
Either way you decide to go -- online or software -- digital tax preparation and e-filing could save you both money and time. The IRS says electronic filing reduces errors and cuts the delivery time of refunds in half.
When it's time to hire a pro
Tax software or filing online isn't for everyone. If you feel like you need more help, it may be time to pay a tax professional.
Before you start rifling through the yellow pages, though, keep in mind that anyone can hang out a shingle that says "tax preparer."
You can walk into national tax preparation chains with a little more confidence. Storefronts such as H&R Block, Jackson Hewitt and Liberty Tax Service require their preparers to complete extensive training before tackling your taxes.
You can locate local offices at their Web sites. Fees for tax preparation services will vary depending on the complexity of your return, but generally preparers are the least expensive way to go.
If you think your tax situation requires more expertise, or if you are considering year-round tax advice and assistance, consider one of the following:
- Enrolled Agents are certified by the IRS after passing a two-day exam and a background check. And they are authorized to represent clients before the IRS in the event of an audit. To find one in your area, leave your name and mailing address on the National Association of Enrolled Agents hotline at 800-424-4339. They'll mail you a list of local agents within seven business days.
- Accredited Tax Advisors and Preparers take courses administered by the National Endowment for Financial Education and receive credentials from the Accreditation Council for Accountancy and Taxation. In addition, they must complete 90 hours of continuing education every three years. Both are qualified to handle returns for individuals and businesses, but tax advisors often handle more complicated issues such as estate planning. You can find either type of preparer through the Accreditation Council's Web site.
- Certified Public Accountants (CPAs) pass state qualifying exams and fulfill other licensing criteria. Like enrolled agents, CPAs can represent clients before the IRS. The American Institute of Certified Public Accountants' Web site provides links to state CPA societies. The state organizations should be able to help you find a CPA in your area.
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