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The 2011 tax filing season has already kicked off as the IRS has already started accepting e-filed tax returns as of January 14, 2012. Individual taxpayers will have until April 17 to file their tax returns. Taxpayers are being given an extra two days to file their returns due to a legal holiday in the District of Columbia. However, waiting till the last minute to file your tax return increases the chance of errors. Besides, the earlier you file the sooner you will get a refund if applicable.
One of the biggest procedural changes this season is the need for paid tax return preparers to obtain and use a Preparer Tax Identification Number (PTIN). New IRS regulations require that all tax preparers have a PTIN, as part of an ongoing program by the IRS to regulate tax professionals. The IRS has launched an online PTIN registration site where preparers can obtain or renew their PTIN. The preparer (whether signing or non-signing) must provide his or her PTIN. If your tax preparer doesn’t have one, find another preparer.
There are several other changes in the 2011 tax filing requirements. To mention just a few, there are changes to Schedule C, a new Form 8949 (Sales and Other Dispositions of Capital Assets) an annexure to Schedule D, changes to Schedule E, and a another new Form 8938 (Statement of Specified Foreign Financial Assets) which needs to be filed along with the tax return and is required of all U.S. persons holding assets overseas to the tune of $50,000 (single) or $100,000 (married filing jointly) as the case may be. This is in addition to the separate filing requirement of the Foreign Bank Account Report (FBAR) for taxpayers having a balance of $10,000 or more in an overseas account.
You can cut down on the number of hours you spend preparing your 2011 taxes by taking a few simple steps as noted below. These steps if followed will save time, money, and hassles down the road.
A System For Organizing Documents
Your system can be as simple as a large envelope or an accordion file. Just designate a specific spot and keep all your tax related documents there.
Review of Tax Documents
Take a moment to review each document so that you can correct any discrepancies well before your start preparing your tax return.
Acquaint Yourself With Tax Changes Of 2010
Several tax law changes were made in 2010 that impact credits and deductions in 2011, plus many 2009 tax credits have expired. Be sure you know the new 2010 tax rules so that you can take advance of every tax credit and deduction possible. For example, the itemized deduction limitation has been repealed, which means that taxpayers can deduct the full amount of their itemized deductions. The personal exemption phase out rules also do not apply in 2011. The 2010 Tax Relief Act included a patch of the AMT exemption amounts for 2010 and 2011. This Relief Act also extends the ability to use nonrefundable personal credits to offset AMT into 2011. It’s easier to take the standard deduction, but you may save a bundle if you itemize especially if you are self-employed, own a home, or live in a high tax area. It’s worth the bother when your qualified expenses add up to more than the 2011 standard deduction of $5,800 for singles and $11,600 for married couples filing jointly. Don’t forget deductions which are deductible if the combined amount adds up to more than two percent of your adjusted gross income such as tax preparation fees, job-hunting expenses, business car expenses and professional dues.
Decide If You Need Professional Help
Note that the U.S. tax code is more than 18,000 pages long and so complicated that it is difficult to comprehend even for the professionals working years together in this field.About 60% of the population pays a professional to help prepare their taxes. Therefore, if you are going to use a professional make sure that the tax professional is authorized to prepare taxes for fees (i.e. has a PTIN) and make your appointment as early as possible.
Collect 2011 Tax Forms Early
You need to study these forms very carefully because many of the changes are embedded into the forms without any warning to the taxpayer of the change. You’ll get to know this when you put your 2010 form next to the new 2011 form. Familiarizing yourself with the form will help you be prepared in completing it correctly. These forms are usually available at your local library or post office. Also, the forms can be downloaded from the IRS’s website www.irs.gov.
Gather Your Tax Information
You already have a multitude of information that is helpful in the preparation of your tax return. Income tax can only be reduced by taking off as much tax deductible expenses you have incurred and you need proof of such deductible expenses. Even before you receive a single tax document you can start by making a list of all your 2011 tax payments and tax refunds. Gather up all receipts and information, collect credit card bills and checkbooks for possible deductions and sum up charitable donations (cash and non-cash). Make sure you know the price you paid for stocks or funds you have sold. If you don’t call your broker before you start to prepare your return. Know the details on income from rental properties. Don’t assume that your tax-free municipal bonds are completely free of taxes.
When a refund is anticipated it is better to file electronically because the taxpayer receives the electronic refund much faster than when a paper return is filed. Additionally, electronically filed tax returns get checked out automatically for errors and accuracy. Furthermore, the IRS acknowledges receipt of your tax return.
Get Refund/Pay Taxes On Time
If you can’t finish your return on time, make sure you file Form 4868 (Application for Automatic Extension of Time) by April 17, 2012. Form 4868 gives you a six month extension of the filing deadline until October 15, 2012 for filing your tax return. On the form, you need to make a reasonable estimate of your tax liability for 2011 and pay any balance due with the Form 4868. It should be noted that filing an extension does not extend your time to pay taxes if you have a balance due to the IRS.
2011 tax time is now in progress and it will be over before you know it (within the next few weeks). By following the simple steps outlined above you can make the process easier, save time, and save money.
The information contained in this article is of a general nature. Please consult your tax attorney or finance professional for details.
Khorshed Alam is a practicing CPA and business valuation analyst. Check out http://alamcpatax.com or call (408) 445-1120.