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Ten tips: Start preparing taxes soon, but thoroughly

Published January 23, 2005

Enjoy doing your taxes? We didn't think so. But here are some tried-and-true tips that make it more likely that your return will be right and that the IRS won't be inspired to come around asking questions later:

1. GET ORGANIZED. Assemble your W-2 and 1099 forms, receipts to back up your deductions and your investment records if you are claiming capital gains or losses. Review the forms for accuracy. If you find a mistake or if you haven't received a form by the end of January, call the issuer.

2. TAKE YOUR TIME. Start your return early in the tax season to give yourself time to collect needed information and answers to questions. Rushing contributes to mistakes. Even if you're using tax software, read over the changes to the tax law that might affect your return. You don't want to overlook anything important.

3. BE PRECISE. The names and Social Security numbers on your return must match those in Social Security records. If you change your name, tell Social Security. The numbers on your return should match the numbers on your W-2 and 1099 forms. If a form is wrong, ask the issuer to correct it.

4. DON'T FORGET THE PAST. Check last year's return for carryover items such as unused capital losses. If you were audited before, don't repeat past mistakes. If you sold a piece of property you previously depreciated, make sure your gain or loss matches what you previously reported.

5. DON'T TRY ANY FUNNY STUFF. Don't be tempted to "forget" some sources of income. The IRS matches 1099 and W-2 forms from issuers against the income reported on returns. And trying to claim deductions the IRS doesn't allow is like waving a red flag. So don't deduct credit card interest, health club dues and funeral expenses. And don't attach a note claiming you don't owe taxes because the income tax is unconstitutional.

6. CHECK YOUR MATH. You may have been a third-grade math whiz, but it's still a good idea to use a calculator or tax software to make sure you've done all that addition, subtraction and multiplication correctly. Sign and date your return while you're at it.

7. TRY A PAYMENT PLAN. Even if you can't pay the tax you owe, it's important to file an accurate return. There are separate penalties for not paying and not filing. One option is to work out an installment agreement with the IRS (Form 9465) and make monthly payments, which will include interest and penalties. You also can pay by credit card, although there is a processing fee in most cases.

8. GET A FAST REFUND THE RIGHT WAY. File electronically and sign up for direct deposit and you should have your refund within two weeks. Getting a rapid refund from your tax preparer is an expensive way to borrow money for a very short time.

9. HANG ON TO YOUR PAPERWORK. Keep a copy of your return and supporting records for at least six years in case you are audited.

10. SAVE FOR RETIREMENT. It is not too late to make a 2004 contribution to your Individual Retirement Account. You have until April 15 to contribute up to $3,000 if you are younger than 50; $3,500 if you are 50 or older. Depending on your income, you may be able to deduct your contribution. The contribution limit for 2005 is $4,000 ($4,500 for those 50 or older.)

Sources: IRS; CCH Inc.; Warren, Gorham & Lamont/RIA, JK Lasser's Your Income Tax 2005.

[Last modified January 23, 2005, 00:13:14]

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