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Each year at this time, people begin to think about filing their income tax return.  It is not uncommon for someone to be frustrated about this process. Jeff Romine, partner, with the Financial Planners of Missouri gives us some helpful tips.

Question: When should a person start thinking about filing their income tax return?  

Answer: On January 1 of the new year, if you haven’t started thinking about filing your tax return, you should begin now.  Tax season begins on the last day of January.  This year, your federal tax return is due on April 15^th.  So now is a good time to begin the process of preparing your tax return.  Many individuals will receive necessary tax documents during January. 

Question: Does everyone need to file their taxes?

Answer: You must file a federal and state tax return if your income is above a certain level.  This amount will vary for different filing status’, age and the type of income you have.   

For your specific case, you should consult IRS materials. So there are instances when people do not need to file a tax return with the federal government.  However, they need to make sure that a state tax return is not required.  There can be other reasons to file.  For instance, you may need to file if your employer withheld taxes and you want a refund. This is probably the most common reason that individuals file that would otherwise have not needed to.  You would also need to file if you are elgible for credits such as the (1) Earned Income, (2) Additonal child tax, (3) American Opportunity, (4) First-time homebuyer and there are a few more.  

Question: I know there are several forms, which one should be used?

Answer:  There are three forms: 1040EZ, 1040A and 1040.  The 1040EZ is the easiest.  Basically, the more complex your tax situation is, the more likely you will need to use a 1040 or 1040A. Some of the criteria to determine which form to use involves your income level.  If you make more than $100,000, if you have certain types of income, if you itemize your deductions or if you owe taxes on household employees, you will need to file form 1040.  Otherwise you may be able to file the 1040EZ or 1040A. 

Question: How do you calculate if you owe any taxes or will get a refund?

Answer: This is the most important part of the entire process.  It is during this process that you determine what your taxes should be.  In summary the process requires you to add up your income from all sources such as your wages reported on your W-2 , interest income, farm income, rent income or income from a business or service, if any of these exist.  Then after some adjustments you have your adjusted gross income.  Next you subtract your deductions (either standard or itemized) and your exemptions, to determine your taxable income. To determine your deductions, you would want to consider such things as your medical expenses, your taxes, mortgage interest, contributions, and casualty losses.  You have a choice here, to deduct the total of your itemized items or to take the standard amount for deductions.  Based upon your taxable income, you determine your tax liability and then you add or subtract any credits that you owe or can receive. Now you know how much your taxes should be for the entire year.  So then you determine how you have paid in already and compare the numbers.  You will either have paid too much or too little.  If you have paid too much, you deserve a refund.  If you have paid too little, you will owe additional taxes.  Those taxes are due on April 17^th to the U.S. Treasury.

Question: Can a person get someone to help? 

Answer: There is an entire industry out there to help you. First, you should know that it is possible to file for free. You can print off the forms and prepare them by yourself at home.  All of the forms and instructions are available online from  www.irs.gov  You would mail this return to the IRS. The IRS indicates that 70% of the nation’s taxpayers are elgible for free tax filing. If your adjusted gross income is $57,000 or less you may be able to e-file your taxes for free. To learn more about this go to: www.irs.gov/freefile. If you want to have your tax return prepared for free by a person, you can watch for a local VITA opportunity, which is Volunteer Income Tax Assistance.  I know at Truman State they offer this service.  Here, volunteers will work with you to prepare your tax return for free.  It is a good experience for the volunteers and they do a good job.  VITA services are offered in other locations around the KTVO viewing area. I also know that some providers are offering to prepare free tax returns. 

Secondly, you can buy one of numerous software packages designed for this purpose that are for sale.  You can buy the software, load it on your computer, and prepare your own tax return.  Each year you can acquire the software and it will help you make an e-filing to the IRS and your state.

Your third choice is to employ someone to prepare your taxes.  As a CPA I am biased towards other CPAs and know they do a good job, there are lawyers that also do taxes, and their are numerous other providers of tax preparation services, such as H & R Block.  I have always advocated that complex tax returns should be prepared by knowedgeable professionals to give the taxpayer some peace of mind about their tax return.

Question: How does one begin?

Answer: I suggest that with each new year, a person develop a tax file.  As they have transactions involving their tax return during the year, they place the documentation for that transaction in this file.  Then after a year of collecting these transactions, they combine this file with the documents that arrive in January.  Then in late January or early February, you sit down with the file to determine your tax situation and decide how to best meet your obligation to the federal government.  Along the way, you have an opportunity to become more knowledgeable about this process and your financial situation.  I am a strong advocate that you become aware of your tax situation and that taxpayers possess an understanding of the tax system that we operate under. 

Jeff Romine, Ph.D., CPA, Investment Advisor Representative

Financial Planners of Missouri

110 S. Franklin

Kirksville, MO. 63501

www.financialplannersofmissouri.com