Barry's Accounting Services, Corp.
1852 Flatbush Avenue - 2nd Floor
Brooklyn, New York 11210
(718) 677-4006
E-mail:
clembarry@aol.com
 
Client Update - quarterly newsletter
 
 

 

Personal Tax Preparation Checklist

This is a partial list of the information needed to prepare your personal tax return.

1) A copy of last year's tax return you filed — new clients only.

2) Social security cards and birth certificates for every dependent you are claiming on your tax return. The IRS will not allow you to claim for a child that is receiving public assistance. Two persons will not be allowed to claim the same child in the same tax year [IRC Section 151(d)(2)]. Child support payments are not taxable to the recipient and they are not deductible by the payor [IRC Section 71(c)(1)]. You can receive a tax credit if you paid a baby sitter or day care center to care for your dependent child under age 13 [IRC Section 21 and regulation 1.44A-2(a)]. To be eligible for the credit, you must give the government the day care provider's full name, full address, social security number or business identification number, and the amount you pay the provider.

3) Forms W-2 — Wage statements from every employer you worked for during the year. Contact every employer who didn't give you a Form W-2 by January 31.

4) Estimated tax paid — Money order receipts and cancelled checks used to pay federal and state estimated taxes. State tax you owed and paid as back taxes or amount you owed and paid the state when you filed your last year's state tax return(s) are tax deductible. Please show proof of payment when you prepare your next tax return.

5) Forms 1099-MISC — If you are a self-employed independent contractor working for a company that you do not own. Expenses you are entitled to deduct will depend on the kind of employment you are involved with.

6) Form 1099-INT (interest on savings account) and 1099-DIV (dividends from stocks and bonds) — from your bank, credit union, mutual fund companies, where you own and sold shares/stock. If you sold stocks during the year, you will have to report the short and long term capital gains and losses you incurred. Investment expenses you paid, including the interest you paid on your trading/margin account are tax deductible. Contact your bank and other financial institutions for the necessary information if you do not receive documentation from them by January 31.

7) Forms 1099-R — If you have retirement income from pensions, annuities, IRAs, or other pension distributions or if you rolled-over your pension into another retirement plan. Form SSA-1099 — if you receive social security benefits.

8) Form 1099-G — If you receive state unemployment. Contact your state unemployment office if you did not receive this form by January 31.

9) Form W-2G — lottery, gambling winnings/losses (IRC Section 165(d). You can deduct gambling winnings up to the amount of gambling losses you incurred during the tax year provided you have all the losing tickets to substantiate your claim.

10)

Retirement plan deduction IRA — Maximum tax deduction for contributions to an IRA is $4,000 for tax years 2005-2007 and $5,000 for tax year 2008. You will be charged 6 percent excise tax for contributing more than the legal amount to the plan. You will be charged a 10 percent penalty for early/premature withdrawal before reaching age 59½. However, you may borrow up to $10,000 from your IRA to pay medical bills or purchase your first home without paying a penalty.

Keogh — A self-employed individual can contribute up to $13,000 in 2004 and $14,000 in 2005.

11)

Form(s) 1098 for residential and rental property — From every bank or mortgage company you paid during the year. The mortgage interest, property tax, and points are huge tax breaks. If you did not receive a form 1098 statement, then call the bank or mortgage company for the information. You must bring the actual figures to the interview. Tax preparers are not allowed to use estimates of these amounts on your tax return.

For rental property — You must report the amount of rent you actually received for each property during the year [IRC Sections 61(a)(5), 109 and 856(d)(1)] plus an itemized list of rental expenses you paid during the year for each property (IRC Sections 163, 164, and 212), such as mortgage interest, property tax, school tax, county tax, water, gas/oil, electricity, insurance, legal and eviction fee, advertising, extermination, cleaning and maintenance, carpet, management fee, and travel to the property. Minor repairs for plumbing, electrical, and carpentry are deductible in full in the year paid (Treasury regulation 1.162-4). Equipment and capital improvement such as boilers, refrigerators, stoves, central air conditioning, new bathrooms, complete renovation of apartments and kitchens, including structural improvements made to the property such as a new roof, sidewalk, driveway, garage, fence, and basement are depreciated and deducted annually over a period of 3-15 years [IRC Sections 167, 168, and 1016(a)(1)]. Expenses attributed to your personal use of the property are not deductible [IRC Sections 262 and 280(A) and treasury regulation (regs) 1.280A-3(d)(3)]. Lodging, meals, and utilities that you furnished to a Super and his dependents are treated as furnished as a condition of employment. These amenities are tax-free to the Super. They must not be included in his gross income and they are not deductible by you, the employer [IRC Section 119(a)(2)].

12)

Record(s) of sale and purchase of real estate — You do not have to pay tax on $250,000 or $500,000 of profit you obtain from the sale or destruction of your principal residence by hurricane, tornado, treats of condemnation, or eminent domain if you own the property for five years and live in it for two years. You can claim this exclusion once every two years (IRC Sections 121 and 1033). If your principal residence was destroyed or condemned, you may have to purchase a replacement property within two years to offset recognized gains. If a lender has foreclosed on your property, your gain or loss for tax purposes is the difference between the net proceeds the lender received at the auction and your adjusted basis in the property [IRC Sections 856(e)(1) and 1001]. Your attorney or insurance company should give you copies of these settlement papers. Take the documents along with you at your tax interview.

If you sold a rental/commercial property, you may have to pay capital gains tax on the profit or on the amount of the depreciation taken (IRC Sections 1231, 1245, & 1250). However, you can avoid paying tax on capital gain and instead pay tax on ordinary income if you sold your rental property to a relative (IRC 1239). If you are not qualified to use this method, then you may use the installment sales method to spread the capital gains and your overall tax burden over several years if you received a downpayment from the buyer and you hold a note or second mortgage for the balance of the sale — Seller finance (IRC Section 453).

You may also qualify for non-recognition of capital gains tax through a Section 1031 like-kind exchange transaction. This tax strategy allows you to reinvest your entire profit into a new property without paying capital gains tax. Section 1031 exchange must be completed within 180 days (six months) after the transfer of the exchange property.

It is important that you retain the services of a real estate attorney to construct your transactions within Section 1031 exchange rules because you can be audited and indicted for tax evasion. You can deduct a maximum loss of $3,000 on your tax return every year if you paid a contractor or developer to build your house and you and other homebuyers lost your money because the contractor filed bankruptcy. This is a non-business bad debt [IRC Section 166(d)(1)(B)]. To qualify for this non-business bad debt, you must show proof of contract, original cancelled check(s) and a letter from the bankruptcy court or from the contractor's attorney.

13) Medical and dental expenses (IRC Section 213) — Expenses you paid for yourself and your dependent(s) that were not reimbursed to you by your insurance, including co-payments and insurance premiums you paid. You can deduct 18 cents per mile for traveling to the hospital or to see your doctor. The amount you paid for cosmetic surgery is tax deductible if the surgery is necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident, trauma or disfiguring disease. Life insurance premiums you paid as a beneficiary under the policy is not tax deductible [IRC Section 264(a)(1)]. Life insurance proceeds you received as the beneficiary as a result of the death of a family member who owned the policy is not taxable to you [IRC Section 101(a)(1)].

14) Structured settlement — Proceeds for personal injury or sickness (compensatory damages) received whether by lawsuit or agreement and whether as a lump sum or as periodic payments are not taxable [IRC Section 104(a)(2)]. However, amounts you received for exemplary/punitive damages are included in gross income and are taxable under IRC Section 61.

15) Charitable contributions (IRC Section 2522) — Amount deducted from your paychecks by your employer, pledge cards, and written acknowledgments from the charitable organization. According to the IRS, you are entitled to deduct the appraised value for furniture and vehicles you donated to a charitable organization, but no more than $500 for property and clothing that were not appraised. If you perform voluntary work for a charitable organization, you can deduct traveling expense of 14 cents per mile plus toll and parking. The IRS would want to see receipts for the deductions you take.

16) Job related expenses (IRC Sections 162, 212, and 274) — The cost of commuting to and from work is considered a personal expense and it is not tax deductible. However, you can itemize and deduct job related expenses that you PAID (cash and accrual basis taxpayers) or INCURRED (accrual basis taxpayer only) to operate your vehicle from your place of business to visit customers, patients, and other job sites. Be sure to have written approval from your employer, records for mileage, gas, lease, insurance, repairs, parking, and tolls before you itemize these expenses. The alternative is to play it safe by taking the standard deduction of 44.5 cents per mile that the IRS allows you. You can also deduct expenses you paid for job related education, including continuing or higher education to maintain your skills, telephone calls to patients or job, professional dues, textbooks, software, stationery, supplies, travel from work to school, travel between jobs for taxpayers working two or more jobs, uniforms, safety equipment, instruments, tools, safety garments, a maximum of $25 for business gifts to an individual, and interest paid on your student loan, etc.

17) Moving expenses (IRC Section 217) — Expenses not reimbursed to you by your employer such as house-hunting trips, moving household goods, personal effects and lodging in the new location are above-the-line items and are tax deductible whether or not you itemize your deductions [IRC Section 62(a)(15)]. You can deduct 18 cents per mile if you drive to the new location. Moving expenses, downpayment or closing costs on your new residence that your employer reimburses you for are taxable income under internal revenue code section 82. However, your employer may exclude this amount from your gross income by treating it as a fringe benefit qualified moving expense reimbursement under IRC Section 132(a)(6). You may deduct unreimbursed moving expenses if your new job is more than 50 miles further away from your old residence and you were employed full time in the new location for at least 39 weeks (9.75 months) during the 12 month period immediately following your arrival in the new location [IRC Section 217(c)(2)(A)]. The 39 month rule does not apply to you if you were a full time employee with your company and were transferred to a new location as a condition of employment that benefits your employer.

18) Casualty and theft losses (IRC Section 165) — You may be able to deduct part of the money you lost in a failed financial institution or loss caused by robbery, vandalism, fire, or storm that was not reimbursed by insurance. The IRS requires you to provide a police report and insurance claim forms to substantiate proof losses.

19)

Alimony paid or received [IRC Sections 61(a), 215(a), and 682(a)] — If your divorce decree or separate maintenance agreement requires you to pay alimony and child support and you pay less than the annual amount, your payment will first be applied to child support. The balance of your payment will be applied to alimony. Alimony received is taxable to the recipient/former spouse. It is deductible from gross income by the payer/former spouse. It is an above-the-line item, therefore the payer spouse does not have to itemize deductions to be allowed the deduction.

20) 529 Plan - College Choice Tuition Savings Anybody can contribute money to this plan to pay for any child's college tuition in the future. The child (or children) does not have to be the taxpayer's dependent. Taxpayers filing single or head of household can contribute a maximum of $5,000 per year and married persons filing a joint tax return can contribute a maximum of $10,000 per year. This deduction is allowed by New York state only. It is not allowed by the Federal. This is an above-the-line item of deduction on New York state tax returns, therefore taxpayers do not have to itemize their expenses to take a deduction for the amount they contributed.

These are some of the tax deductions the government has allowed individual taxpayers. Tax rules and deductions are subject to change without notice. Please call (718) 677-4006 to make an appointment for office consultation to discuss your current tax situation or call the IRS at (800) 829-1040.