GET YOUR RETURN DONE RIGHT: A 15-Point Tax Checklist

Face it: The tax fairy isn’t going to file those taxes for you. Here’s a step-by-step guide to finding and filing those forms you’ve been avoiding.

It’s time to start thinking about getting those taxes done. Maybe you’re in a panic. Not to worry. Just follow Chris’s 15 steps to getting your taxes done, and you’ll be much happier. Ready. Here they are:

1. Get Serious

Unless you’re focused, you’re going to see that receipt six times rather than the once you need. This is all mental now. Schedule a time to get to work and commit to that time. Then . . .

2. Get Started

Remember that commitment to get to work? Keep it! This step requires action. Get your pencil and take the blank forms out of the envelope where you’ve been hiding them, praying that the tax fairies would make them go away. My father reminds me of the old Brooklyn proverb, “A trip of a thousand miles begins with a traffic jam.” Get in that “traffic jam,” and your tax return will begin to gel. Now . . .

3. Get Organized

Something has to go on those returns. Get your W-2’s together to report wages, your 1099’s to report interest and dividends, your 1099B’s for reporting stock and bond sales, and your 1098’s for deducting your interest and taxes. The IRS and your accountant both want final numbers. It makes it easier for them and less painful financially for you. Bring either one a shopping bag full of receipts and you’re going to hurt . . . especially in your wallet.

4. Get Informed

Forget the talk about new tax cuts for now. Do you know what changes the 2001 and 2003 tax cut laws made for you? If not, get educated! You can’t expect to win the tax game, or even play it successfully, unless you know the rules. If you’re tax “simple,” the IRS can actually do the return for you, or you can have your return done “online” — sometimes even for free. Alternatively, if you’re tax savvy, do your own return after learning all the new rules. Otherwise, go to a professional to . . .

5. Get Help

You might remove a splinter from your own finger, but you wouldn’t perform major heart surgery on yourself. A trip to a tax professional should at least tell you what you’re missing. Don’t hesitate to ask for help; it’s deductible! But call for an appointment now! The later your accountant does your return, the more tired that tax preparer you have. You want your return done when he’s at his best.

6. Get Status

Decide how you’re going to file. The lowest rates are with joint returns, but if there are potential high medical or miscellaneous deductions, Married Filing Separate may yield a lower total tax. Do it both ways. Alternatively, a single mother may qualify for the Head of Household rates, which are better than the rates for filing Single. Sometimes, when a joint return isn’t practical, even a married person with a dependent child can qualify for Head of Household rates, which are much better than Married Filing Separate. You need to know the rules.

7. Get Adjusted

There are certain deductions that are allowed regardless of whether or not you itemize. Such deductions include IRA and Qualified Pension Contributions, Student Loan Interest, Moving Expenses, Alimony, Medical Savings Account deductions, and, for the self employed, the Health Insurance deduction and deduction for Half the Self Employment Taxes paid. These are known as “Above the Line” deductions. The infamous “line” is your Adjusted Gross Income.

8. Get Itemized

Which is bigger — your Standard Deduction or the sum of your Itemized Deductions? We’re now “Below the Line.” The chart next to line 37 on your 1040 lists your Standard Deduction. Compare this amount to your total allowable Itemized Deductions. That’s the sum of your allowed medical expenses, taxes, interest, charitable contributions, casualty and theft losses, and miscellaneous itemized expenses. Always do it both ways . . . and, subject to the alternative minimum tax (and don’t even try to get into that), always take the higher amount.

9. Get Exemptions

For 2003, you get to deduct as much as $3,050 from your income for each qualified exemption you have. Despite myths to the contrary, these include children who are full-time students under age 24, regardless of how much income they may have. As your income increases, your exemption deduction may decrease. For 2003, on a joint return, your exemption deduction will be phased out between adjusted gross income of $209,250 and $331,750. For singles, the numbers are between $139,500 and $262,000.

Here are the most recent standard deductions and exemptions that apply to most taxpayers:

You reduce the dollar amount of your exemptions by 2% for each $2,500 or part of $2,500 ($1,250 if you're married filing separately) that your AGI exceeds the following amounts:

If your AGI exceeds the levels above by more than $122,500 ($61,250, if filing separately), you get no deduction for your exemptions.

10. Get Credits

A credit is the best expense to have. It’s a dollar-for-dollar reduction in your taxes. A deduction reduces your tax by your marginal rate. For example, at a 27% rate, a $100 deduction reduces your tax by $27. A credit would reduce your tax by the full $100. Review the potential credits you may be eligible to claim. If you have children, you may qualify for the child tax credit or the child and dependent care credits. Did you adopt? There’s an adoption credit. With or without children, you may qualify for education credits and a credit for foreign taxes paid (Check your 1099Bs). Don’t forget the credit you get for estimated taxes paid, withholding, and, if you worked for two or more employers, excess Social Security withheld.

11. Get Cash

Decide how you’re going to file. That’s going to effect how quickly you’re going to get that refund. If you e-file, and make the IRS happy, you're going to get your money back faster. Alternatively, if you paper file, direct depositing your refund eliminates mail delay and speeds your access to cash. It also eliminates checks lost in the mail. The only reason I can see for not direct depositing with a paper filing is if you just don’t have a bank account.

12. Get Filed

None of this matters if you don’t actually get your return to the IRS. Even if you owe money, there’s interest and penalty for not filing, in addition to interest and penalty for not paying. You’ve done the hard work, now get it off your desk! Or file for an extension.

13. Get Receipts

If you filed on paper, get a receipt. I always mail my returns certified, return receipt requested. If the IRS doesn’t get your return, it wasn’t filed. It may have been lost in the mail, or lost by the IRS itself. But, unless you can prove that it was filed, if the IRS doesn’t have it, legally it wasn’t filed. Prudence today can avoid disaster tomorrow.

14. Get Planning

It’s not to early to start your planning now. Once tax season is over, your financial advisor is going to have the time to review your wealth accumulation strategies. Don’t put it off . . . people don’t plan to fail . . . they merely fail to plan. And finally . . .

15. Get Real

It’s only your taxes — not life or death! Do your best — but don’t obsess. Even the IRS understands that only those with tombstones over their heads never make mistakes. Remember, it’s the new, friendly IRS. But, they will charge interest and penalties.