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On money

Prepare tax return early and accurately

By HELEN HUNTLEY
Published January 22, 2006

The goal is to get the deductions and credits you deserve without incurring the wrath of the IRS. The key to success is filing a return that's complete and accurate. Here are some tried-and-true tips for achieving that with a minimum of pain:

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 allow time to collect needed information and answer questions. Rushing contributes to mistakes. Read up on changes in the tax law that might affect your return. Some research also is a good idea if you went through any major life changes last year such as getting married or divorced, having a child or sending one off to college, or starting a new job or business.

3. BE PRECISE. The names, birth dates and Social Security numbers on your return should match those in Social Security records. If you change your name, tell Social Security. A wrong number will delay a refund. And, of course, you need to sign and date your return.

4. DON'T FORGET THE PAST. Check last year's return for carry-over 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. The IRS matches 1099 and W-2 forms from issuers against the income reported on returns, so be sure to report it all. Trying to claim deductions the IRS doesn't allow is like waving a red flag. You cannot deduct credit card interest, health club dues or funeral expenses. And don't attach a note claiming you don't owe taxes because the income tax is unconstitutional.

6. CHECK YOUR MATH. Use a calculator or tax software to make sure your math is right.

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 and make monthly payments, which will include interest and penalties. You also can pay by credit card, although there is a processing fee.

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 2005 contribution to your Individual Retirement Account. You have until April 17 to contribute up to $4,000 if you are younger than 50; $4,500 if you are 50 or older. Depending on your income, you may be able to deduct your contribution. The contribution limit for 2006 is $4,000 ($5,000 for those 50 or older.)

Sources: IRS; CCH Inc.; Warren, Gorham & Lamont/RIA, JK Lasser's Your Income Tax 2006.

[Last modified January 19, 2006, 19:50:03]