BEST TAX RETURNING TIPS

Two things in life are certain – death and taxes. Here’s what to do if the two are combined as far as filing a tax return.

Tax Returns for the Deceased

If a person dies, their finances are immediately converted into something called an estate. The estate is then responsible for filing a tax return covering the finances including income and distributions to heirs and beneficiaries. However, a final personal tax return must still be filed for the deceased.

The final personal tax return for the deceased is known as Form 1040. Yep, you file the same tax form as you would for any personal tax return. It is hard to believe the IRS passed up an opportunity to create another form, but there you go. Miracles do happen.

When determining the income and taxes due for a person who passes away, the date of death is the cutoff. All income earned before that date for the year goes on the personal tax return. All income earned after death is the responsibility of the estate and will be reported on the estate tax return.

As to deductions, there is good news. Regardless of the time of the year when the grim event occurs, you can claim the full deduction for the year and any other expenses that occur prior to death. Put another way, you don’t have to calculate any ratios based on the number of months that have passed. If someone passes away in February, you still get the full write-offs for the rest of the year.

When a person passes away, an executor or trustee will be in charge of their estate. The exact designation depends on what type of estate planning they did. Nonetheless, this person will sign the tax return and note the person is deceased. This should take care of everything with the IRS excluding the estate tax return.

What happens if the deceased is due a tax refund? In such a situation, the IRS will not just kick out a refund unless the deceased was married. If married, the refund is sent to the spouse. If not, you must file a Form 1310 to get the refund. This form basically says you are claiming the refund, have the right to do so and absolve the IRS of any involvement in subsequent disputes.

When you finally decide it is time to prepare your taxes, the first question is whether you should itemize your deductions or take the standard deduction provided by the IRS.

Choices, Choices…

Tax deductions are a very simple part of a theoretically simple tax reporting system. If you’ve ever prepared your own taxes, you know this simply isn’t true. Complicated tax forms can be a nightmare to fill out. Ever helpful, the IRS gives you an option of just taking a standard deduction instead of itemizing your deductions. So, what should you do?

The standard deduction is the easiest method because it requires no calculations or supporting documentation of any sort. You figure out your adjusted gross income and simply submit the amount for your classification. The amount differs based on whether you are filing as single, married, older than 65 or have kids.

Many people scoff at the mere idea of taking the standard deduction. As with all tax issues, deciding whether to take the standard deduction isn’t so easy. If you have a fairly simple financial life and don’t have many deductions, the standard deduction is almost always the best choice. For instance, if you make $45,000 as an employee of a company, rent a residence and don’t have any major medical bills or losses, the standard deduction is probably going to save you more money than itemizing. Unfortunately, you can never be sure until you take a stab at itemizing your deductions in a rough draft of a tax return.

Itemizing your deductions is exactly what it sounds like. You literally go through your records and categorize every possible deduction. These deductions are then subtracted from your adjusted gross income to get a final figure from which tax is determined using the tax tables. Itemizing is the way to go if you have significant tax deductions or tax credits in your financial life. For instance, you almost always want to itemize if you own a home as mortgage interest can be deducted. Generally, you want to itemize if you own a home, have significant medical bills, can claim a tax credit or suffered some type of major loss. Obviously, there are other situations where itemizing makes sense, but this gives you an idea of the situation.

If you have a simple financial situation, claiming the standard deduction may be the answer. If life is a bit more complicated, itemizing is probably going to save you more on your tax bill.

The end of year tax return must be the most stressful part of running your own business. It is even worse if you have earnings abroad and have to fill in tax returns from those countries as well.

How can you make life easier?

1. Start an accounts system. This can be in a hardbck ruled ledger that you can buy from any stationery store.

2. Keep receipts for everything. Enter these into your accounts once a week, or once a month

3. Enter any payments made to you in your accounts system as soon as you get them.

4. Look at the different software accounts packages. You will learn to use whatever package you buy, but try to avoid the over complex ones in the first instance. If you are comfortable with using spreadsheets and cell formulae you could keep your accounts in a spreadsheet program.

5. Open the tax return envelope as soon as it comes. Putting it off does not help. Check all the sheets you need are there. Download or send off for any missing sheets.

6. Aim to have your tax return filled in well ahead of the final deadline. That way the IRS or other government revenue department will check your figures and work out how much you owe them. This causes much less stress than having to do it yourself and worrying whether you have the calculation right.

7. As an alternative to steps 3-6, you can employ an accountant. You can pay the accountant to fill in your tax return and to do your accounts for you. The amount you will pay will depend on the amount of work involved. If you just take in a box of receipts and deposit slips you can only expect to pay a higher fee than the person who presents the accountant with neatly filed receipts and accounts.

According to federal laws governing taxation, any person, receiving an income in one form or the other, need to pay income taxes to the government annually. But, the job of preparing tax returns, the calculations and the many tax forms involved, constitute one of the harrowing experiences being an honest tax payer. To make matters worse, the complexity of calculations increases with the income. That is, more the income, more complex will be associated tax calculations and also the number of tax forms involved. This article focuses on the last of the facts mentioned, the tax forms, especially 1040ez, 1040a, and 1040.

The first step in the run-up to tax return submission is selecting the right form. The basic of the tax forms is the 1040 – also 1040ez and 1040a – which has to be appropriately filled by every person filing tax returns in any case. It is meant for all kinds of income, over $100,000 annually, and also for itemizing deductions when not opting for standard deductions. 1040ez, again a basic tax form, on the other hand is meant for people who are single or when married, jointly. The conditions governing the 1040ez form are, the tax payees must not have any dependents, not blind, age less than 65, and have an annual earned income (taxable) less than $100,000 with an earned interest not more than $1,500, and have non-itemized deductions. Finally, the form 1040a is for those who have an income less than $100,000 annually, but with itemized deductions.

The stickiest part with tax preparation in fact is the right selection of the tax forms. Boy! It can be really confusing. To make matters worse, most of the people, they start thinking about tax returns only in the 13th hour, all warnings and ads by the tax department not withstanding. Some even end up paying the fine for delayed tax returns. But, none of these last minute heroic acts is ever going to give any respite to the person as far as the ordeal waiting for them is concerned, if not compounding it further. Here, one simply cannot afford to go wrong in the selection of tax forms and filling it. An error anywhere – in the type of form (1040ez or 1040a or 1040) or the data incorporated – could lead to other complexities such as an unprecedented delay in tax refunds or even a fresh request to pay the income taxes from the tax department to clear the confusion.

Hence, considering such possibilities, it is advisable that if anyone is confused regarding the tax forms to use or with tax calculations, don’t hesitate to consult a tax specialist. They could help you with the tax calculations and the selection of the right form and documents (of course, they’ll take a pay for the service). On a general perspective, however, it is only advantageous to remain educated about taxation’s various dimensions and requirements. A professional could extend the much needed assistance, but it is always on a safer side for the individual himself/herself to be aware of the basic rules regarding taxation. Let’s not take everything for granted!

Another plus with acquiring enough knowledge about the different dimensions of tax preparation and the tax forms – 1040ez, 1040a, or 1040 – is that then he/she could easily and safely shift to tax preparation software like TurboTax that are easily available in the internet to complete the formalities. TurboTax software is accurate, easy and simple to use, and what all you need to do is to first download the tax preparation software on your PC, and then provide the figures the computer asks of you. However, it is very important that the right figures be provided to the Turbo Tax software always so that there are no mistakes that may arise in the 1040a, 1040ez, or 1040 forms, when all the calculations are finished.

One could get the tax forms – 1040ez, 1040a, or 1040 – from IRS or public library.
Make sure that you fill it out properly and include all the required documents before submitting it to the authorities. Ensure your signature on it and also the social security number without any errors. A misquoted SSN could cause lots of difficulties, both for the tax payer and the tax authorities.

The IRS has issued a warning regarding a phishing email scam. The scam claims you are due a tax refund, but is really designed to obtain your personal information.

Tax Refund Email Scam

Phishing scams are designed to swindle you into providing private information that can be used to your detriment. This information typically includes things like credit card numbers, social security numbers, bank accounts and so on. This information is then used to open financial accounts in your name, a process otherwise known as identity theft. Frankly, it is a nightmare you do not want to be a part of.

The IRS is warning people about a tax refund email scam, which works like this. You receive an email purportedly from the IRS indicating you are due a tax refund. You are directed to click a link to visit an “IRS” page. On the page, you are asked to provide your social security number, etc., so your account can be accessed. This email is fraudulent and designed solely for identity theft.

IRS Does Not Use Email

The IRS does not use email to contact taxpayers. It certainly doesn’t use it tell you about tax refunds. The IRS only communicates with taxpayers through the mail or by telephone. Do not fall for this scam!

Are You Owed A Refund?

But what if you really are owed a tax refund? Well, the IRS is certainly not going to contact you by email to tell you. Think about it. The IRS doesn’t HAVE your email address, so how would it send you a message?

If you think you may be owed a tax refund, the best option is to pick up the phone and contact the IRS. You can reach the agency by calling 1-800-829-1040.

Whatever you do, never respond to an email from the Internal Revenue Service because they are fake. Don’t get suckered!