Part Two – Paperwork
At their web site, www.irs.gov, the IRS conveniently lists and provides 1,129 different forms for your enjoyment. They also provide 770 publications to help explain the forms. What could be simpler?
If your combination of income and expenses isn’t too complicated, than neither does your tax filing need to be. If all you did was earn a salary and a little bank interest, then you can probably file the 1040EZ – Income Tax Return for Single and Joint Filers With No Dependents. That’s a relatively easy short form (2 pages) that handles basic income, the standard deduction (see below) and a convenient address to which you may send your check.
If you have anything other than completely straight forward income or deduction scenarios, then you will need to file the ever popular Form 1040. It is not impossible to fill out the actual paper forms – just make sure you do the first draft in pencil. If you are using a software package, you are essentially completing the Form 1040. The software breaks down the process down into a Q&A format.
Depending on what types of income you have, you may have several addenda to the 1040 which you’ll have to complete. The most common are:
Schedule B – Interest and Ordinary Dividends
Schedule C – Profit and Loss from a Business
Schedule D – Capital Gains and Losses
Schedule E – Supplemental Income
Schedule F – Profit and Loss from Farming (I would not include that funny stuff growing under lights in the basement)
Schedule SE – Self Employment
If you are doing your taxes by hand (and I think everybody should do it at least once) then you may have to go to the post office, bank or IRS office to get some of these forms. You can also download them from the IRS site http://www.irs.gov/formspubs.
Rightly or wrongly, the Federal government does not trust you to be honest about how much you made and how much you spent. So they have arranged for the people who pay you anything to report it to them independently. And those payers are required to give you a copy of what they reported to the government.
The types of things you might receive are generally income records.
- W-2 for wages and salary
- 1099-Int for interest paid to you
- 1099-Div for stock dividends paid to you
- 1099-Misc. for other stuff paid to you
- 1099-R for retirement distributions (OK, you’re not likely to get that one)
Only the W2s that you receive (you’ll get one from each employer you had during the year) come with a copy to attach to your return. The others you just hang on to for your records.
There is a whole alphabet soup of 1099 variations and loads of others as well, but these are the most common ones. If somebody sends you one of these and then has a change of heart, you might also get a “corrected” version. That’s your punishment for filing early. If you get a corrected form and you have already filed then you’ll need to file an amended return. Now there’s some fun.
For deductions, you have to keep track of your own paperwork. Funny how the IRS has requirements in place to report income, but nothing for helping you track deductions. You should have some kind of record of:
- Taxes you paid to entities other than the federal government (state income tax, local property and excise tax, etc.)
- Contributions you made whether they be cash or goods (e.g., clothes to Salvation Army). You can also keep a log of travel expenses for the time you volunteer.
- Work expenses that are not reimbursed by your employer. If you are required to buy a beanie with ears attached and to wear it to work but your boss refuses to pay for it and you don’t wear it anywhere else – you can deduct that.
- How much you paid in college tuition for your kids (the school should send you a Form 1098-T)
- How much interest you paid on your mortgage (the bank will send you a Form 1098).
- The cost of preparing and sending your taxes last year. That’s right, if you shell out money this year for Turbo Tax or H&R Block, you can deduct it next year.
You do not have to provide copies of these things with your tax filing. But – if the IRS decides to question your deductions (can you say “Audit”?), then you need to be able to prove that the deductions you took are legitimate.
All that said, most people are better off just using the “Standard Deduction.” The IRS figures it’s worth their while to just concede that everybody is going to take some deductions. And rather than make you substantiate every $73 contribution to Uncle Skippy’s Old Timey Church of Perpetual Barbecue, they figure it’s just as easy to give you a flat rate deduction and call it a day. That’s $5,700 for Single filers, $8,350 for Head of Household, $11,400 for Married filing Jointly, and $5,700 for Married filing separately ( http://taxes.about.com/od/2009taxes/qt/quicktaxfacts09.htm). If you can come up with more deductions than the Standard (like if you have a mortgage) you are welcome to go for it, but otherwise the Standard will do.
Are you still breathing?
In Part 3, we’ll talk about some other cool topics that will make you the life of your next party, like Estimated Taxes, Audits and State Income Tax