Question of the week – How do I prepare to meet my tax preparer?

For most tax payers, the items you need to prepare for your tax consultant are:

Marital changes in your life.  Did you get married, divorced, separated under a separation decree, or a death of your spouse.  Be prepared with dates, and SSN.

Dependent changes in your household.  Did you have a child, adopt a child, death of a child, or your child moved out?  If your child is between 18 and 24 and is a full time student, they can live away from you while going to school.  Be prepared with date of birth and SSN of your children, and the length of time they lived with you.

Income – You will need to locate and account for all W-2 from jobs held for the tax year, and any 1099’s you might have.  You should think back through the year to determine if you have received all the forms.  If not, you will need to contact the companies and have the forms resent to you.

One source of income that people often overlook is the interest and dividend from their bank accounts.  Your bank will send you a 1099-Int form.  If you have a bank account or investments, and receive more than $20 in interest or dividends, you need to report this as income.  If you have not received the 1099, you may need to contact them to have a new one sent.

Another source of income forgotten about is payments from the government.  If you received a refund from the previous year taxes, or stimulus payment, the government will send you a 1099-G form.  Your tax consultant will need this info to determine several figures on your form.

For deductions on your taxes, locate any donations form for either cash or items donated, any volunteering mileages and expenses, student loan interests, medical expenses, and energy efficient changes to your home.

It’s tax season again, and as new business owners are getting hit with a tax liability at tax time, I thought I would explain a few ways to avoid a big tax bill at the end of the year.

One place many people forget to track is vehicle mileage.  Though you cannot count mileage to your office, and home from your office, you can count mileage going to and from clients places, or activities related to your client’s or your business.  The standard mileage rate for 2010 is 50 cents per business mile driven, 16.5 cents per medical or moving miles driven, and 14 cents per charitable/volunteering miles driven.  Although you can use actual cost of the vehicle, most find it harder to track if the vehicle is not a company only vehicle.  When claiming the mileage expense, make sure you note the beginning mileage of the vehicle for the year.  You will need to know how many total miles driven for the year.  More information on this can be found at http://www.irs.gov/newsroom/article/0,,id=232017,00.html.

Another area business owners overlook is the home office expenses.  If you do some work from your home, you are allowed to claim a home office.  First you figure out the total square feet of your home.  Then you figure out the square feet of the home office.  That percentage is what you use when claiming the expenses of the home.  Some expenses people tend to overlook is your utilities: electric, gas, water, and garbage. Also forgotten are insurance, telephone, internet, repairs or maintenance, cleaning costs, pest control, snow removal, and security systems.

One more way you can avoid a large liability at the end of the year is to make quarterly estimated payments.  If you need to figure out what your payment should be, I have a formula that will figure it out quickly.  All I would need is your net income from your Profit and Loss.

Happy New Year!  Start your year out right with Cathy’s Accounting.  Visit us online at www.cathysaccounting.com