Time to Think About Taxes

By Katherine Reynolds Lewis
c.2007 Newhouse News Service

Preparing your income tax return? This year, pay special attention to deadlines, dates and paperwork.

First, the good news: Taxes are due April 17, a couple of days later than usual. The traditional April 15 is a Sunday, and a local holiday on April 16 would affect six states and the District of Columbia, so the Internal Revenue Service pushed back the deadline for all Americans.

Not so good: Tax code complications are likely to cause delays and revisions in some of the forms you receive in the mail. Mutual fund companies could send corrected 1099s as late as March, said Rod Coleman, senior vice president at SYM Financial Advisors in Warsaw, Ind.

"People who have filed their taxes too eagerly end up looking at a revision," Coleman said. "Mid-March ought to get you past most of it."

To prepare your taxes, you'll need the following paperwork and information:


Your 2005 tax return. This gives you a starting point, and helps avoid forgetting a bank account or other item that should be on your 2006 return.

The W-2 form your employer(s) mailed to your home.

All 1099 forms showing income from banks, brokerages and other institutions.

If you own your home, the 1098 form from your mortgage company, showing mortgage interest and any real estate taxes paid.

Social Security numbers for yourself, your spouse and any dependents.

Your checkbook and other records of charitable, medical, educational and professional expenses that you may claim as deductions or credits.

Recordkeeping requirements have been "substantially stiffened" for 2007 and beyond, Coleman said. "If you put $10 in the plate on Sunday as it goes by, you need to make sure to get a receipt ... or write checks."

Don't overlook non-cash donations, such as furniture given to your church or Goodwill, said Leo Bruette, a tax partner with BDO Seidman in Bethesda, Md.

A good rule of thumb is to claim a quarter of the original purchase price of the item, Bruette said. Any donation worth more than $5,000 must be appraised except for publicly traded stocks and bonds.

Sales tax receipts if you want to deduct state sales taxes instead of deducting state and local income taxes on your federal return.

"If you choose the sales taxes, you have the option of doing a standard table or what you actually paid," said Mark Luscombe, principal tax analyst at CCH in Riverwoods, Ill. "That's especially helpful for people in states that don't have an income tax, like Florida and Texas."

Your bank's name, routing number and account number if you want any refund directly deposited. (This information is on the front of your checks.)

You may also need records from any major financial transaction, property loss or life change.

"You want to think about any changes to your life: marriage, divorce," children born or graduated from college, said Earlaine Klingler, a certified financial planner with McQueen, Ball & Associates in Bethlehem, Pa. "Some people forget that their kids are no longer allowed to be dependents" after age 24, or when they finish their schooling.

Remember to claim the telephone excise tax refund being given this year only. More than a third of the returns that have been filed early aren't showing the refund, IRS spokesman Eric Smith said.

People who are entitled to the refund can claim it even if they aren't obliged to file a tax return, using a special form, Smith said.

Double check your return, especially the details, to avoid careless errors like forgetting a tax form or overlooking a statement. Make sure to keep all your records, receipts and expense logs for at least three years.

"The most common mistakes people make are pretty silly: not adding things up right, failing to sign the return, having the wrong Social Security number, or Social Security numbers that don't match the names," Luscombe said.

If you don't sign the return, it's considered to be non-filed, so the IRS could hit you with penalties, he said. There's no statute of limitations for a non-filed return.

"The best way to avoid mistakes is to file electronically," Smith said.

Bob Brennan, a former revenue agent for the IRS, advises clients to file a tax return even if they can't pay the full amount due. For tax bills up to $10,000 you're entitled to a payment plan, with some exceptions. Even up to $25,000, the IRS will usually let you negotiate an installment agreement, he said.

To request a payment plan, attach Form 9465 to the front of your return, so the IRS will see immediately that some action is needed, Smith said.

"A lot of people put their head in the sand," said Brennan, a certified public accountant with CBIZ Accounting, Tax & Advisory Services in Plymouth Meeting, Pa. "The worst thing they can do is not file the return. There are significant penalties and interest."

If you fail to file a return for three years or more and owe a substantial amount, the IRS might even bring criminal charges, he said.

Tax calendar for 2007:

Feb. 15 If you claimed exemption from income tax withholding in 2006, you must file a new Form W-4 to continue the exemption.

Mid-March Wait until now to file your return early, just in case your financial institutions correct your 1099 forms.

April 1 Deadline to make mandatory withdrawals from a retirement account if you turned 701/2 before Jan. 1, 2007.

April 17 Deadline to mail your 2006 income tax return or request an automatic six-month extension, to fund an individual retirement account, and to pay estimated taxes if you are a business owner or an individual with inadequate withholding.

June 15 Second round of estimated tax payments due; deadline for U.S. citizens living outside the country to file tax returns.

Sept. 17 Third round of estimated tax payments due.

Oct. 15 Deadline to mail 2006 return if you requested an extension.

This story was originally published Tuesday, February 6, 2007.