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Tax Guide for Individuals

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					This is a guide that can help individuals prepare for and file tax returns. It helps an
individual plan for and prepare the proper documentation required for tax returns. This
guide includes information about whether an attorney is needed, how to find a reputable
attorney, and includes a frequently asked questions section. In addition, this guide
provides information about standardized deductions and itemized deductions. This
guide can be used by individuals that want more information about how to plan and
prepare for tax returns.
Table Contents

How to use this guide:......................................................................................................... 3
Do I need a lawyer? ............................................................................................................ 3
How do I find a reputable lawyer? ...................................................................................... 3
Do I need an accountant? .................................................................................................... 4
How do I find a good accountant? ...................................................................................... 4
Frequently Asked Questions ............................................................................................... 5
Advantages and Disadvantages to Tax Planning and Preparation: ................................... 11
Steps to Tax Planning and Preparation ............................................................................. 12
Disclaimer ......................................................................................................................... 13




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                   TAX GUIDE FOR INDIVIDUALS

How to use this guide:

Planning and preparing taxes is usually perceived as one of life’s more unpleasant
experiences. Navigating through the complexities of tax law is can be frustrating. With a
little tax planning, you can save money and reduce the stress usually associated with tax
time. This guide will walk the reader through some of the basics of tax planning and
preparation. It will also answer some frequently asked questions. This guide is not a
substitute for legal advice. Should you have any questions you should contact a lawyer
and/or an accountant.



Do I need a lawyer?

In general, you do not need a lawyer to plan for, or prepare your taxes. If you have a
complex set of circumstances however, you may need to seek the advice of counsel. If
you have any questions regarding your tax situation it is always wise to seek the
professional advice of either a lawyer or accountant.



How do I find a reputable lawyer?

The law is a huge field and each subject is fairly vast, so find a lawyer who is well versed
in tax law. There are many resources available to find counsel in your area by through
the phone book, the internet, or even word of mouth. If you are interested in using a
particular lawyer but aren’t sure, contact the local Bar Association and see if the lawyer is
in good standing. Most lawyers will give a free initial consultation. This would be a
good time to size up your lawyer, ask a lot of questions and get a general feel for their
knowledge in the area.




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Do I need an accountant?

Whether or not you need an accountant depends on the complexity of your current
situation.   Some are perfectly comfortable planning and preparing their own taxes.
Others are not. The more complex your financial situation, the more likely it is that you
will need the guidance of an accountant.



How do I find a good accountant?

There are numerous ways to find a good accountant. You can use the yellow pages, word
of mouth, local business associations or the internet.            Once you have narrowed down
your choices, it’s a good idea to interview them. Ask them what services they can
provide, what are their strategies for saving you money? Choose someone that has broad
experience and has a solid understanding of tax planning and preparation.




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Frequently Asked Questions

Why do I need tax planning?


Tax planning is a vital element when dealing with your personal tax situation. There
strategies you can employ throughout the year that could reduce your bottom line at tax
time.


What is tax free income?


We all know that if you make money, more than likely a portion of it will be owed to the
IRS. However, there are certain types of income that are not subject to income tax at all.
Some of these include money collected from the sale of a home, money set aside for
children’s education, health savings accounts, some employee benefits, giving
investments to your children.


What is my “tax rate”?


Your tax rate is based on the “last dollar” that your taxable income is taxed. It is the
maximum rate you are paying on most of your tax dollars. The rate is established for the
most part on your amount of income. The rate can either be 10%, 15%, 28%, 33% or
35%.


Is it possible to reduce my tax rate?


You can benefit from the lowest rates by employing a few strategies. For instance,
earning income from investments like stocks and bonds, mutual funds and real estate
allows you to pay taxes at capital gain rates, which are as low at 5%.


What are some ways I can lower my taxes?




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        Tax Credits: Tax credits reduce the amount of taxes you will pay. There are tax
        credits being added all the time. Some credits to look into include: home energy
        improvements, purchasing a hybrid car, child care, and education.


        Maximize deductions: Make sure that you aren’t missing any deductions. As an
        individual you are entitled to take a standard deduction or an itemized one.
        Itemized deductions can include things like: home mortgage interest, property
        taxes, and charitable donations.


        Shift your income to others: It is possible to shift a portion of your income to
        say, your children. This reduces your total income and therefore lowers your
        taxes. Recent changes in the law have made this more difficult but it is still
        possible.


        Take advantage of you tax filing status: Your tax filing status sets the
        foundation for what tax bracket you are in, what personal exemptions you can
        claim, and calculating your standard deduction.




What is The Standard Tax Deduction?


This is a fixed amount that most people claim. It reduces the income on which you are
taxed. They are:


        Single or Married Filing Separately $5,700.
        Married Filing Jointly or Qualifying Widow(er) $11,400.
        Head of Household         $8,350.


If you are 65 or older you can add $1,100.
If you are 65 or older, single and or head of household $1,400.
If you are blind add $1,100 or $1,400 if you are blind.



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What is an itemized deduction?


If your itemized deduction is higher than the standard deduction you can use the itemized
variety. If you have purchased a home you may be better off using an itemized deduction
as a good deal of interest and taxes associated with a home purchase can be written off.


        Some commonly overlooked deductions are:


        State and local income taxes;
        Charitable contributions;
        Medical expenses;
        Out of pocket job expenses;
        Casualty losses.


What type of out of pocket job expenses can I claim as a deduction?


The general rule of thumb is job expense deductions must be “ordinary and necessary.”
An expense is considered ordinary if it is commonly accepted as part of your trade,
business or profession.        It is necessary if it considered helpful.   Some allowable
deductions include:


       Profession or trade dues;
       Personal tools and equipment;
       Travel, meal and entertainment expenses;
       Computers and mobile phones;
       Office supplies;
       Bonding;
       Research, lecture and writing expenses,
       Safety equipment;
       Union dues.



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Can I deduct my home office?


Yes. If you use a portion of your home regularly for doing business, you can deduct
expenses related to your home office, such as rent, interest, insurance, utilities.


What are above the line tax deductions?


These are deductions you can take even if you don’t itemize. These include:


        Student loans (up to $2,500.);
        Tuition (up to $4,000);
        Contributions to health savings accounts;
        Alimony;
        Military reservist deduction (for travel over 100 miles and stay overnight);
        IRA contributions.




What is an Earned Income Credit (EIC)?


This credit was created to help with the burden of social security taxes of low income
earners. Even if you do not owe taxes, you can still claim this credit. For more details
refer to Internal Revenue Service.


How much does an unmarried dependent student have to make before they are
required to file an income tax return?


For the detailed analysis, refer to IRS publication 501. However even if you do not have
to file you should file a federal income tax return to get money back if:


        You have had income tax withheld from your pay;



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        You qualify for an additional tax credit;
        You qualify for the earned income credit.


If you file under head of household, do you have to claim your child as a dependent?


You don’t need to claim your child as a dependent to qualify, such as when the child is
unmarried and is your child, grandchild, stepchild or adopted.


What if I just found a mistake on my return and I have already filed it?


It will depend on the type of mistake it is. Usually mathematical errors are caught by the
IRS. If you failed to attach a document, the IRS will catch it and request that you supply
the missing information. If you failed to report income or did not claim a credit you can
filed an amended return.


I am in a payment plan for previously owed taxes. Can I receive a refund for these
years’ taxes?


Any refund due to you in the future will be applied to the amount you owe. You will not
receive a refund.


I am getting a new job. Can I save my grocery and clothing receipts for charges I
incurred getting ready to go to work?


Traditionally food and clothing are not deductable. If you do not pay sales tax you can
add up the amount of the sales tax for these items and take that as a deduction.


My child is 21 and still lives at home, can I claim his as a dependent?


If he made less that $3650. for the current year, you can claim him as a dependent.




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Can I deduct interest from my credit cards?


No, however if you own a home you can pay off your credit cards with a home equity
line. The interest paid on a home equity line is deductable.


My boyfriend lived with me all year. Can I claim him as a dependent?


If he made less than $3,650, and you provided more than half of his support, and he is
not being claimed by someone else, you can claim him as a dependent.


I drive 75 miles to work every day, Can I claim that as a tax credit?


You cannot take credit for commuting to and from work.


How can I save on taxes while saving for retirement?


If you are an employee, make sure you are maximizing your 401(k) or other deferred
income plan. This money does not show as income on your W-2.


Look into making contributions into a tax-deductable IRA, if you can. Check to see if
you qualify.


If you are self-employed, check into a Keogh plan, a Simplified Employee Pension, or a
Saving Incentive Match Plan as different ways to shelter income.




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Advantages and Disadvantages to Tax Planning and
Preparation:

Advantages


        Education and planning for taxes allows for the best result when its time to file.


Disadvantages


        Tax planning and preparation is time consuming and can cost you money;
        Sometimes you have to spend money to save in the long ru.




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Steps to Tax Planning and Preparation

    1. Start your tax planning early, before its time to file your taxes;
    2. Take full advantage of tax exemptions and deductions under the law;
    3. Take full advantage of tax savings investments;
    4. Spread taxable income among members of your family (gifting to children for
        instance).
    5. Meet with a qualified accountant to employ all useful strategies to get the most
        thorough result.




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Disclaimer



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responsibility for the enforceability or effectiveness of its documents. Users should
consult with a lawyer if there is any question as to the appropriateness of the documents
for their particular situation.”




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DOCUMENT INFO
Description: This is a guide that can help individuals prepare for and file tax returns. It helps an individual plan for and prepare the proper documentation required for tax returns. This guide includes information about whether an attorney is needed, how to find a reputable attorney, and includes a frequently asked questions section. In addition, this guide provides information about standardized deductions and itemized deductions. This guide can be used by individuals that want more information about how to plan and prepare for tax returns.
This document is also part of a package Understanding Small Business Taxes 3 Documents Included