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Are You Prepared for Tax Season?

I am sure you are all aware that tax season is here and that now would be a good time to get your documents in order.  I wanted to give some basic pointers around doing your taxes that might help some of the beginners out there.

The most important and most misunderstood aspect of taxes, is the IRS. Often people are afraid of the IRS as they believe that IRS agents are evil and simply want to get your money and make your life hell.

The IRS uses an automated system to audit taxes once submitted and then manually looks at all returns that seem to get flagged by their computer. They are not evil, they are simply government accountants that want to ensure tax dollars are accounted for.

What happens if there is a discrepancy?

– We are all human and have the right to make mistakes, the IRS understands that and does not believe you are a cheater simply due to a mistake. When a mistake is found, they simply send you a notice letting you know of the mistake, along with a revised proposed payment or refund schedule. Once you receive the notice you simply have to comply or defend your case within the allocated time frame. Your defense does not have to involve a lawyer, a CPA or any other expensive professional, it can simply be a remittance of evidence along with an explanation letter written by you.

What are my options for doing my taxes?

-The complexity of your taxes can vary based on your individual situation but there are some guidelines you can follow that can help you save money.

For simple tax returns, consisting of employment W2 forms and the ownership of a main property at the most. It is very easy to complete your own taxes using a software called Turbo Tax, which can be found for FREE at www.turbotax.com. Simply download and install the Federal and State programs that pertain to you and follow the instructions in a step by step tutorial. The process is simple and only requires you to pay attention to the various entries you are asked to submit. The program will automatically check for any errors and triggers of audits that will allow you a fast and easy return.

For more complex taxes for individuals with main employers, self employment, multiple incomes from rental properties, and ownership of businesses, you have a few options.

You can go to a tax professional like H&R block, the downfall is they are simply sales people that enter your info in their computer that uses a software like Turbo Tax and then submit your info on your behalf. Their knowledge is highly limited when it comes to the laws of the IRS. Not to discredit using such service as there are some locations and tax professionals that are highly qualified and competent. The other solution is to contact your CPA. Often your CPA is the key to getting your maximum refund, they simply know the law and more importantly know you well enough to not give you the run-around but rather go the extra mile to get you out of paying taxes.

What if I owe taxes?

-If you are unfortunate to owe taxes, you can simply write the IRS a check and submit it along with your tax return. If the amount is out of your immediate reach, feel free to call the IRS and make arrangements. DO NOT SIMPLY NOT PAY as you will face potential legal issues and will end up paying high fees and penalties. The IRS can be reasonable and allocate a timetable and payment amortization for your situation. Before paying any amounts owed and giving up, it is encouraged to have a second look and to look at optional contributions you can make to pay less taxes. There are tools and resources (IRA, Annuities) available until April 15th that can be back dated to last year and change your deduction amounts which can change the amount you owe in your favor.

When doing your taxes, simply keep in mind that the IRS is not evil as long as you play by the book and stick to your deadlines. Should you not be able to, simply communicate your issues with the IRS and request an extension prior to the pay date.

Best of luck to all this year and of course spend your refunds wisely.

Taxes