Saturday's Post: From the Archives

Time Spent Now Means Being Less "Taxed" Later

Updates: This article was originally posted in February, 2009. Since then, the IRS has stopped automatically sending out 1040 instructions and forms to every taxpayer. You can download forms and find tax information on http://www.irs.gov. If you know anyone who doesn't have access to a computer and printer, they can check their local post office or library for forms and instructions. Also, the tax deadline this year, due to a Federal holiday, is April 18 instead of April 15. 

Please check the IRS online site for  information on any new deductions or filing requirements for 2010. 

Some tax preparers now offer free filing of "EZ" tax forms. Make sure that such a form is appropriate for you and double-check for any extra fees not included in the "free" filing. 

Oh, joy.

For those of you who feel that your head will explode if you even think the words "April 15th" I have a suggestion. Before you pay big bucks for a computer tax program or hand over all the details of your financial life to a tax "expert" with four weeks training ...try this.

Do your taxes yourself. But do them in easy-to-handle stages and start right now.

Unless your taxes are incredibly complicated (in which case, I imagine you already have an accountant standing by) you can probably handle them yourself. But like anything done at the last minute, waiting until the second week in April to begin will likely cost you, in terms of both money and aggravation.

So begin now. Right now. Break the chore up into easy stages, which will also give you time to collect all the forms, receipts and information you need.

Stage One
Sometime this week, take an hour to pull last year's tax return and go over it. Make note of any tax-affecting changes in your life during 2008. For example:

• Did you gain or lose a dependent?
• Did you buy or sell a home?
• Did your employment situation change?
• Did you accrue medical expenses?
• Are you now paying college expenses?
• Did you buy or sell stock, or contribute to to a 401K or other retirement plan?

I suggest you stash that list in a large manila envelope marked "2008 Fed. Taxes" or label a storage box the same way and put the list in that. (File folders, at least for me, tend to disappear into the nearest pile.)

By now you should have received your 1040 packet. plus W-2s, 1099s, investment statements and any documents relating to income or deductible expenses. Add those to your "tax box" as well. If you don't already have every document you need--if something's missing, such as a property tax receipt or a dividend statement--starting now means you have time to request a duplicate.

Also, now's a good time to note any extra IRS forms or instructions you may need, based on your list and last year's return. Check to see if you have them in your 2008 1040 packet; if not, you can download them from irs.gov. It's a good idea to download more than one copy of any form. (Make photocopies of the forms included in your 1040 packet, including the 1040 form itself.) You'll find these extra blank copies useful later.

Stage Two
Spend an hour or so next week organizing your documents according to how you'll need them. Your main categories will probably be Income and Deductions; sort things into smaller classifcations within those two categories. For instance, you may want to divide your Deduction documents into such subcategories as Retirement, Medical Expenses, Dependents, Taxes, Business Expenses and so forth.

Even if you normally take the standard deduction, spend a little time checking these things to make sure you're not short-changing yourself. A few more deductions added in 2008 (the first child sent to college!) could give you a higher total than you think. You can also use the internet to get additional ideas for deductions, but make sure the IRS recognizes them by double-checking them at www.irs.gov. (One example of something new? In 2008, even if you take the standard deduction, you can now also deduct as much as $1000 worth of your property taxes. Nice!) Note: According to irs.gov, this deduction is not available for 2010,  an example of why you need to check changes in deductions each year.

Stage Three
By this time, you should have all the documents and forms you'll need. Now make a rough estimate of your taxes. Do it using your photocopied forms. If you make mistakes on these forms, you can simply cross them out and note the corrections.

This is a good way to double-check that you have all the paperwork you need and it's also the time for you to get an idea of how much tax you'll owe, another piece of information that's better known well before April 15th!

Stage Four (Aim to complete this by April 10th.)
Fine tune everything. Make clean copies of all the forms and do a final check of all your math. Then fill out one last photocopied version of your 1040 and all relevant IRS forms. Hopefully, you've reached this stage a few days before April 10th.

Wait a few days, to let your over-taxed brain cool!--pun intended--then recheck everything one more time.

Now you can fill out your actual 1040. Double check that you've included your Social Security number and signed the form. (Failure to do so are two of the most common mistakes taxpayers make.) Fill out your final versions of any additional forms needed, attach them to the 1040, make sure you've included your W-2 and any other necessary documents, add a check (hopefully a small one) make copies of everything and have your completed tax package ready to send to the IRS with days to spare. (If the IRS owes you money, check into e-filing your return. You'll get your refund a bit faster.)

Now all you need is a stamp.
No rushing, no drama, less strain, less pain....and because you're doing the job yourself instead of hiring someone, less expense.

A few more tips.
You can actually fill out an online 1040 at irs.gov. It's in the PDF format, so you'll need Adobe Reader.  You can save what you do and make printouts, but unlike computer tax programs, you have to do the math yourself.

You can also fill out tax forms for free at Turbo Tax, but for any return more complex than the 1040EZ, you'll have to pay between $29.95 to $109.95 to actually e-file your return or print it out.

Still, you might use this service as a guide, or as a way to find extra deductions.

Good luck! (I'd add "Have fun" but--geez--we are talking about doing your taxes here!)