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Using Professional Income Tax Preparation
Doug Smith

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The time of tax preparation is one of the most irritating and dreaded times of year. Many taxpayers wait until the last minute to dive into their piles of receipts and tax forms to try to prepare their federal income tax return. April 15 is the typical IRS (Internal Revenue Service) deadline for most tax years. Paying taxes is a legal obligation that helps run the country, or that is the theory! Regardless of your views on that, preparing a federal tax return is a duty we cannot ignore. Preparing tax returns involves several steps.




Calculation of your total income is the first step in preparing your return. This number consists of more than simply the wages reported on your Form W-2. The total income is comprised of many parts, including your salary, earned interest, gambling or lottery winnings, investment profits, and just about anything else that earned income for you. This number is easiest to calculate during your tax return preparation if you have saved and cataloged the required receipts and forms throughout the year. Employers, banks, and investment houses will send you a single Form 1099 or similar form after the end of the fiscal year.




The next step in Form 1040 preparation is to determine the total amount of any federal taxes you have already paid. Most U.S. citizens have federal income tax withheld from their paychecks each month. If you have more than one job, you will receive a Form W-2 from each employer. Add up all the federal income taxation withheld from each job, plus any other taxes you paid throughout the year (such as self-employment taxes, if applicable). This calculation gives you the amount of taxes you have already paid during the year.




The next step in preparing your federal return is to use the tax charts to locate your total income, so that you can find the amount of taxes due for someone with that income. Compare the tax amount from the table to the amount you have already paid. If the amount already paid is bigger, then you are entitled to a tax refund of the difference. If the amount already paid is too small, you will owe taxes to the IRS.




You can maximize your income, or minimize the taxable amount you have to pay, by itemizing your deductions. Deductions are credits you can subtract from your total income, thereby decreasing your overall tax burden. Some of the most common deductions are yourself, your dependents, medical bills, unreimbursed employee expenses, depreciation on equipment, charitable donations, mortgage interest, and certain types of mileage. Your tax professional can tell you which deductions are allowable and legal, and which are not. Be sure to have receipts for all the deductions you claim, in the event of a dispute or audit by the IRS.




You can claim the standard deduction amount rather than itemizing your deductions. It is much less work to do so while preparing your return. However, it is worth the exercise to calculate your itemized deductions. If they total more than the standard deduction, you will either get a larger refund or pay a lower tax bill. Most first-time taxpayers don't have enough deductions to itemize, and so can use the streamlined Form 1040-EZ.




Tax returns can be filled out by hand, by software, or by a professional tax preparer. Regardless of which method you choose, planning and organization will take a lot of the pain out of your federal income tax preparation task.



Copyright 2008 by Doug Smith.  All Rights Reserved Worldwide.  Unauthorized Duplication Prohibited.  Not Intended to be Professional Advice.





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