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The following points are important considerations when preparing an individual tax return - IRS Forms 1040, 1040A and 1040EZ. Most software will choose the simplest form for you. If you are on social security, expect to pay more to most retail tax preparers.
Filing Status and Exemptions
Single. This applies to unmarried people without dependants
Head of Household. Unmarried people with dependants normally benefit from this filing status
Dependant - This is somone you are supporting Only one taxpayer may claim a dependant, so a dependant cannot claim him or herself
Married Filing Joint. If you had a choice as a married couple, you would normally be better off if you each filed single
Married Filing Separate. For many reasons this is not normally an advantageous filing status. People often file in this way when one party owes the IRS and the IRS will withhold part or all of a refund to pay off that obligation
Qualifying Widow. For recent widows with a dependant, this is an advantageous filing status
Income
You should receive a W2 from every employer. A copy goes to the IRS so that information must be included in your return. It also shows various withholdings such as federal and state income tax, social security and medicare.
You may get many 1099's relating to interest, dividends, stock market transactions or subcontractor work you did. You may find foreign tax paid in the broker statement.
Many investors also receive K1's. One of their investments was actually in a Publicly Traded Partnership who issue K1's instead of 1099Div.
If you operate a small business or as a real property owner have tenants, please also see tab for business.
Keep all 1098 forms specially for interest and for your or your dependents tuition. Especially review scholarship payments.
If you are a landlord, keep documents to prove your income and expenses.
Deductions
The golden rule is to retain for at least four year all documents containing information relating to your return.
Be sure that you understand the rules regarding a dependant. The big benefits arise if she or he is a full time student at college but remember that the credit only applies to your out of pocket expenses relating to tuition and fees. Be sure to bear in mind any grants and scholarships. The dependant may start earning income from which federal and state taxes were withheld. Their friends point them to Turbotax to get refund. They do and your efiled return bounces.
Your stockbroker sends you a 1099 Composite which includes dividend and interest income, losses and gains on stock transactions, and foreigh tax credits. Be sure and determine a basis for any items which do not show a basis and adjust for 'wash sales'. Check the end of the form to see what the broker charged for management fees.
You are self employed, maybe even with an office in your home. Check the square footage of the office and the square footage of your home, bearing in mind that the office should be used regularly and exclusively for your business. If you own the house and later on sell it, you will be deemed to have depreciated that portion of the house and you will pay tax on that recaptured deduction. The other item you need to be careful about is mileage. You need to track this by vehicle and retained detailed mileage records.
Each December people visit Goodwill with sacks of used clothing. If you claim more than $500 donation deduction, you need to itemize each piece showing purchase price and date. You are not allowed to deduct more than the price the charity would charge to sell it. Keep the receipt and details.
NOL's. Net Operating Losses. If you have an NOL, do not for a moment consider preparing your return yourself. State rules regarding NOL's often differ from the IRS rules.
If you have lived in two states, own property or bank accounts in another state or have relocated, you might be wiser to use a pofessional tax preparer.
If you are a US citizen or permanent resident and live abroad, again I suggest you use a professional tax prepare. The same applies if you are not a US citizen or permanent resident living in the US.
