How To Prepare Your Taxes
Don't let tax season scare you. Unless you're a mega-mogul, tax preparation is relatively simple. Here's a simple guide to preparing your tax return.
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Step 1:
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Perfect Form
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Download form 1040 from www.irs.gov
There are three versions of the tax form.
1040EZ
If you're young, make under $100,000, don't own a home and don't have kids, use the "EZ" version of the form.
1040A
If you have dependents, paid college tuition, student loans or contributed to an retirement account, use 1040"A" -- the short form. Anything more complicated than that, and you'll need the regular 1040 form which allows you to itemize all deductions including property taxes and mortgage interest.
1040 (Long Form)
You need to itemize deductions, including mortgage interest, if your income is over $100,000, or you sold stocks, bonds or property.
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Step 2:
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Write Off The Top
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Unless you're using the EZ form, exemptions are the first thing to figure out. You get one exemption for yourself… another for your spouse. If you have dependents, you get an exemption for each one of them. On 2007 returns, each exemption reduces taxable income by $3,400. Dependents can include children, disabled persons and/or elderly parents.
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Step 3:
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Make It Count
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Now it's time to calculate how much money you made this past year. Wages are simple. They're calculated for you on the W-2 form your employer is required to send you by the end of January. The W-2 shows your pay and any taxes already taken out by the government. You also have to report capital gains, alimony, state income tax refunds from last year and any cash or prizes you won. If you're self-employed or an independent contractor, check the mail for the 1099 forms from anyone who paid you. All those earnings go in the income section of the 1040.
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Step 4:
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Knock It Off
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Here's the part where you can reduce your tax bill by deducting your expenses, interest, and taxes you've previously paid. It all ends up in the "Adjusted Gross Income" section of forms 1040 and 1040A. Just remember… major deductions often require you to attach additional forms.
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Step 5:
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Sleep On It
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The most common mistakes on tax forms are simple things like math errors, extra zeros or boxes that aren't checked. Once you complete the forms, set it all aside. Wait a day, then check it over before filing.
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Step 6:
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Paper Or Plastic?
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You can mail your return the old-fashioned way, or you can e-file. If you provide the IRS with your bank account information, they'll deposit your refund within a couple of weeks. If you owe, don't worry. The IRS takes credit cards.
