Its that time again! Whether you prepare your own tax return or employ a tax preparer, its time to gather information about your income and deductions. Even if you expect a refund, as 75 percent of Americans do, you probably dread facing that annual ritual involving the endless paper-sorting, the mad search for deductions, the horror of the bottom line, and the harrowing, last-minute dash to the post office.
The first step is to gather all income statements. If you receive wages or retirement benefits, the payer should send a Form W-2 or W-2P by January 31, which shows your income and withholdings. If you are paid on commission or are an independent contractor, your income will be reported to you on Form 1099. You will also receive a 1099 form for other payments, such as interest, dividends proceeds from the sale of real estate or securities, and tax refunds. Even if you didnt receive a notice from the payer, you still have to declare all taxable income that you have received during the year.
Next, tackle possible deductions by going through monthly bank statements and collecting canceled checks, which represent a tax-deductible item. Sort the deductible checks into groups, such as donations, taxes, medical and dental, interest, and miscellaneous deductions. Locate the receipts for bills that you paid with cash, and place them together with the canceled checks. Also list amounts that you paid by credit card. Total the checks and receipts for each category, and transfer these totals to a summary of tax-deductible items. It is sometimes helpful to review the deductions claimed on last years tax return, to be sure you arent missing anything that might be deductible. The standard deduction for people who do not itemize their deductions on Schedule A (Form 1040) is, in most cases, higher for 2009 than it was for 2008.
Nearly two out of three taxpayers choose to take the standard deduction rather than itemizing deductions such as mortgage interest and charitable contributions and this tax seasons standard deductions are as follows: $11,400 for married couples filing a joint return and qualifying widows and widowers – a $500 increase compared with 2008 – $5,700 for singles and married individuals filing separate returns, up $250 and $8,350 for heads of household, up $350.
Another change involves mileage. The standard mileage rate for business use of a car, van, pick-up or panel truck is 55 cents for each mile driven. The standard mileage rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 24 cents per mile. The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.
After all the legwork is completed, it is time to actually file a return. By automating tax preparation and filing, hours of toil can be eliminated. The IRS estimates that the average household devotes a whopping 14 to 16 hours to preparing Form 1040 and this doesnt even consider schedules A or D or extra form and schedules. This digital trend is certainly catching on as the Internal Revenue Service (IRS) reports almost 90 million Americans filed federal returns electronically last year. The IRS estimates that it processes refunds for e-filed forms in half the time it takes for paper returns. If you also elect to have the government deposit your refund directly into your bank account, youll save more time. If you owe money, you can avoid writing and sending a check by using electronic-funds withdrawal.
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