The holiday season is over and it is time to resume the daily routine.
Unfortunately, that also includes the most dreaded time of the time of the year: Facing the fact that records that were not kept have to be reconstructed.
For many people, the shoebox full of records disappeared a month or two after filing last year’s tax return.
If your job shifted several times, you might have forgotten one or two jobs held for a week or two.
Or maybe you moved and did not leave the new address with the old employer.
That’s when you get a letter from IRS asking you to agree to their changes to your tax return.
So, let’s look at income and make sure you have it all. As the W-2s and 1099s come in, put them into a folder or envelope marked “2016 taxes.” Please make sure you have all of them and do not make up one to cover income earned somewhere, such as cash paid for contract work.
You can always put “under-the-table” income on a Schedule C and write off a variety of legitimate expenses such as mileage and supplies.
If you qualify for Earned Income Tax Credit, it is possible that legitimate earned income reported on a Schedule C can increase your credit and decrease your tax liability.
By the way, it is a good idea to count the number of children (with their social security numbers) you can prove belong to you and not someone else (such as your unmarried spouse who disappeared).
IRS accepts as proof such things as school records, medical records, Social Services records and other similar documents.
For the more affluent who might receive K-1s, do you have them all? Generally the last date to file is Oct. 15 after filing an extension. K-1s should be in no later than mid-September but that does not always happen.
File the return without the information from the K-1. You can always file an amended return when the information finally arrives.
Think about interest, dividends and sales.
I hear taxpayers, some of whom are my clients, tell me after the IRS deficiency letter arrives, that they did not think they needed the information because they made no money and thus had no income. Wrong! IRS only collects income information from third parties. They have no way of knowing that you broke even or lost money because no one told them what you paid for the item or what your basis was.
Be smart. Cover your bases. Report all of your income and have your preparer help you write it off against legitimate expenses.
Virginia Moryadas is a tax preparation professional in Bluffton.