I have been in the Tax Industry for nearly seven years now. There are many situations that I come across that are a lot less “scary” then the average person seems to believe. I am writing this article in hopes of easing tax payers minds and also in hopes of helping out fellow tax professionals.
Many people seem to be afraid of the Internal Revenue Service (IRS). For good reason is some cases as they tend to harass people for more information about things that they have already proved. Most times the information that they are asking for is easily obtainable, although the wording the IRS uses can be confusing. In most cases I would recommend taking the correspondence to your Tax Preparer or Accountant. Chances are that they will be able to easily translate the notice for you and gather the information that they are requesting. A simple fax will usually satisfy the IRS or if nothing else, mailing them copies of the information will appease them.
As a Tax Preparer one of the most common questions that i am confronted with on a daily basis is “What do I need to bring with me when I get my return prepared?”. Even though many seem to think that this is a simple question to answer, it is actually very complicated. Each individual has a different answer that they are looking for. The true answer is that the tax payer should bring anything that they receive throughout the year that is labeled “Important Tax Information” or “Important Tax Document”. Although there are other things that are very common that are needed too, including: Property Taxes, Mortgage Interest, Bank Interest, Charitable Contributions, etc. One of the more uncommon things needed is COST BASIS, this is only required for tax payers that sold stocks throughout the year. What exactly is Cost Basis? It is the amount that the individual paid for the stock that they sold along with the year that it was purchased. If the stock broker does not provide this information and the tax payer did not retain the information after the original purchase, obtaining cost basis can be very difficult. If after researching, one is unable to obtain the requested information, zero is the cost basis that the tax professional must use, which then means that it is considered a gain even if it was ultimately a loss.
Another frequent question from clients in the Tax Industry is “Where is my Refund?” this too is a very simple question to answer. The Internal Revenue Service (IRS) has a website (www.irs.gov) that all taxpayers can use, and it is very user friendly. When the tax payer reaches the website the link that they are looking for can be found on the right side of the Home page. The tax payer will need three pieces of information ready when they begin: Their social security number; Their filing status (i.e.: Single, Head of Household, Married Filing Joint, Married Filing Separate or Widowed) and the amount of their Federal refund. Once they enter those three pieces of information and press enter, they will receive the status of their Federal Tax Return.
The final tax problem/question I would like to address had to do with dealing with Retirement Accounts. Many people are ill advised when it comes to the handling of these accounts. If you are under the age of 59 1/2 DO NOT remove your money from these accounts unless you are willing to deal with not only the tax on the money but also and early withdraw penalty. The bank or institution in which the account is drawn from is usually willing to withhold the tax but the IRS also penalizes the withdraw at 10%.