[The following is a general guide to IRS tax returns - consider professional advice, as taxation regulations are subject to interpretation and amendment.]
Just the mere mention of the term, IRS, can make a person's skin crawl. Why is it that something that is such a part of life can cause a person such agony year after year? The likely reason is that IRS tax returns are cumbersome and confusing and it seems that the rules for completing IRS tax returns change as often as the seasons.
Another reason tax returns are difficult to complete is that the information a person needs to complete the tax returns is unknown and rarely is stored neatly in one place. For many people, it takes longer to gather the information needed to complete the IRS tax returns than it does to actually complete the tax returns.
The best way to tackle tax returns is to take a different approach to record keeping. Instead of waiting until the last minute to complete IRS tax returns, start keeping organized records early on, from the beginning of the tax period.
Not only will accurate and organized record keeping facilitate the process of completing tax returns, these records may be needed later on, if you are ever audited by the IRS. You may have to provide proof of or justify a particular IRS deduction and the only way you can properly do so is by providing a receipt. A canceled check or credit card receipt shows that you paid some company some amount of money, but an invoice attached to that canceled check shows exactly what the money was used for. This is the type of detailed information that the IRS wants to see if there ever is a question pertaining to any part of your completed tax return.
Keeping sufficient records of expenditures in an organized manner is one way to keep the IRS at bay. Some people simply do not fully understand what documentation needs to kept to accurately complete tax returns. There is a general rule of thumb and it is that more is better. It's better to have too much information than it is to have insufficient documentation. In fact, taking the time to itemize your tax returns can often lead to greater IRS tax benefits.
There are basic record-keeping rules that you need to implement right away. To properly complete tax returns you should keep canceled checks, credit card receipts, invoices, sales slips, receipts and anything in writing that documents an expenditure of money. If you pay for something using cash, you must in return get something in writing which documents the date, the amount paid, and the reason for the expense.
To complete your tax returns, or if you're ever audited by the IRS, you'll need statements that show mortgage interest payments, property tax payments, real estate taxes, closing statements from real estate transactions, child care expenditures, stock, bond or mutual fund dividend income or losses, and statements detailing any contributions made to charities. Health insurance payments, union dues, 401K contributions and any other type of deduction that appears on your employment pay stub also needs to be easily accessible to the IRS or to complete tax returns.
A lot of information is needed to properly complete tax returns. Although it's tempting to just toss supporting documentation after you've filed the recent year's tax returns, don't. Keep all tax returns, and any IRS statements such as the W-2s or 1099s, for an indefinite period of time. You never know when you, a family member or the IRS will want or need a copy of a tax return. The IRS only keeps tax records for three years so you've got to protect yourself by having your own copy or your tax returns.
As previously mentioned many people decide not to itemize their deductions on their tax returns and choose to instead take the standard deduction. These people perhaps do not realize all the items that the IRS allows them to deduct. Besides allowing deductions for better-known items of charitable contributions, mortgage interest payments and property taxes, the IRS allows deductions for other things including medical expenses, job hunting, use of personal car for work, education and more. Here's a rundown of some IRS allowable deductions that many people fail to itemize on their tax returns. Some of these fall under the category of miscellaneous deductions. The only IRS requirement for itemizing miscellaneous deductions is that they total two percent of the adjusted gross income.
First of all, the IRS allows you to take deductions to learn. The IRS allows you to deduct the cost of tuition for going back to school when doing so enhances your job skills. As a taxpayer, the IRS also allows you to deduct the costs of publications, subscriptions and professional memberships that are related to your job. Plus, the IRS also allows you to deduct the costs of learning how to properly complete your tax returns! That's right. The IRS is so interested in having tax payers properly understand their IRS-related responsibilities that it lets you deduct the costs of tax preparation software, books and other tools. In some cases, the invoice from your tax preparer is also tax deductible.
The costs involved in searching for a new job, provided you remain in the same line of work, are tax return deductions even if you search while you are still employed. Deductions allowed by the IRS include telephone and travel expenses, plus the costs of creating and mailing resumes.
If you use your personal car while at work, the IRS allows you to deduct 32.5 cents per mile, excluding your commute. Parking fees and tolls can also be deducted on your tax return.
Also, the IRS allows you to deduct under the miscellaneous category the costs of any publication, software or subscription that helps you better manage your investments.
Medical expenses, provided they total at least 7.5 percent of the adjusted gross income, can be deducted on your tax returns. Remember to plan for and include elective surgeries and orthodontic work as these can be considerable expenses and will help reach the high AGI requirement.
Don't forget the IRS benefits found in refinancing and home-equity loans. Unamortized points from previous mortgages can be deducted as can the interest payments on a home equity loan up to $100,000.