Taxpayer asks:

Dear TaxGirl,

Recently I received a request from a company to fill out a W-9 form.  I am not, nor have I ever been, an employee of this company.  However, I did receive money from them.  I’ll explain quickly…

My mother worked as a 1099 employee for a manufacturing company.  She sold millions of dollars of their product to different companies, and in turn that manufacturing company would then send her commissions.  Unfortunately my mother passed away last year and as a result of her unexpected passing I, being her next of kin, was responsible for paying her funeral expenses.  Because my mother had worked for this company for so many years, and was very close with the owners of the company, the CEO and CFO both felt that it would be the right thing to do to pay me a set amount of her commissions.  They wrote me a check out of the company account and I accepted it thinking it was a gift.  I am now being asked to complete a W-9 form.  Since this was a “gift” am I required to fill out this form?  And am I required to list this amount as income and therefor be taxed on it?

I’m not sure if it will help you, but the amount was $5000.00.

I appreciate any help you can provide me with this situation.  I was always taught to never look a gift horse in the mouth, but now I guess I should first ask if there are tax implications!  Ha!

taxgirl says:

So this is a tough situation. Unfortunately for you, the IRS doesn’t consider payments made by an employer to an employee (or for the benefit of an employee) to be a gift. With that in mind, the CEO and CFO should have been more clear about the nature of the payments. However, it sounds as if they intended to settle with you for commissions owed to your mother, which means they’re going to report it as if it were taxable compensation.

Regarding the form W-9, they should have asked you to complete the form prior to issuing the check. However, if the form is required and you fail to complete it – whether the company asked you when they should have or not – you could be subject to a penalty from IRS (as will the company, but that’s their issue). Alternately, the company could issue the 1099 with the taxpayer ID marked as “REFUSED” which could raise eyebrows at IRS. I rarely find that it’s worth it to refuse to complete the form W-9 if you know they’re planning on issuing a 1099.

All of that said, I don’t know if this was properly payable to you in the first place from a tax perspective. There might be some complicating factors here such as the commissions being more properly payable to the estate (which it might have been if this was actually a settlement for money owed to your mother). You should contact your tax pro and/or estate attorney if you have questions or concerns about taxes owed on the payment.

One last thing… That bit about always asking first if there are tax implications before accepting gifts, compensation or money from third parties? Excellent advice. Promise me that you will in the future.

–

And let’s make sure we understand a few things, ok?

1. Unless you have a representation letter in hand, you and I don’t have an attorney-client relationship, capiche? I mean, I’m sure you’re a nice person. I appreciate you stopping by the blog. But it doesn’t mean anything more (I’m having a weird deja vu to a couple of bad dates in college).
2. Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. This blog isn’t meant to offer you legal advice. I’m just calling it like it is. If you have real questions – i.e. you’re hiding in a closet while the feds bang on your door – you need to consult with a tax professional. If you live in my corner of the world, that might be me. But see #1.
3. I do work at a law firm. Some might even say I’m a partner at said law firm. But this blog is in no way affiliated with my law firm. The other partner and my malpractice carrier insist on it. And I have to live with one of them. And it’s not my malpractice carrier. So, again see #1.
4. I’m not responsible for anything anybody says on this blog except me. But play nice. I don’t want to have to throw you out of here (there’s that deja vu to college again).
5. And one more thing. I’m not here to help you cheat the system. That should be obvious. But just in case it’s not, the IRS wants me to reiterate that I’m not. So consider this your Circular 230 Notice:

IRS Circular 230 notice: In order to comply with requirements imposed by the IRS, I must inform you that any U.S. federal tax advice contained in this blog is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this blog.

It will also fail to make you rich, lose weight, get white teeth or regrow hair that has been lost. I can’t guarantee dates or life matches (in fact, it’s arguable that if your friends find out that you read a tax blog, you could lose points). I have never made a good stock tip and I can’t buy your gold. I’m also miserable at making pie.

If you still have a question, check out these tips before you “ask the taxgirl.”

–

Want more taxgirl goodness? Sign up to receive posts by email, follow me on twitter (@taxgirl) or hang out with me on Facebook.Similar Posts:

• Ask the taxgirl: “Temporary” Employees and 1099s
• Ask the taxgirl: Self-employment Tax
• Ask the taxgirl: Getting Paid Under the Table
• Ask the taxgirl: Making Work Pay Credit for 2011
• Ask the taxgirl: Paying someone else’s health care expenses

Taxpayer asks:

Hi,
I just got my taxes done and I don’t see paperwork for my homestead credit or working pay credit in my taxes. I looked at last years and all of it is in that one I called and left a message with the person who did my taxes but I should get working pay credit if I own a home plus I am one dependent. Ishould get working pay credit to this year correct?

taxgirl says:

There is no Making Work Pay Credit for 2011 so you’re not going to see the paperwork (Schedule M) for that credit.

Homestead credits are not federal tax credits. I’m assuming that you’re referring to a state or local credit of some description. I can’t answer that one for you but would suggest that you follow up with your preparer if you have any questions or concerns.

Your question raises a really good point, however: it’s extremely important to review your return with your preparer. When you sign that return (or authorize e-file), you’re doing so under penalty of perjury. You need to understand what it is that you’re signing: willful ignorance isn’t an excuse. Ask your preparer to walk you through what your return says, including any accompanying schedules or additional forms or reports. If you’ve paid for state or local returns, make sure that they’re included with your paperwork and that the proper schedules are included. If you need vouchers or extra copies, make sure that you have those in hand, along with any special filing or mailing instructions.

If you’ve left without paperwork that you’ve paid for, you should definitely call up your preparer and find out what happened. It may be something as simple as having accidentally left them on a table.

Finally, be sure that you use a preparer that you trust to know the rules and to follow-up, if needed.

–

And let’s make sure we understand a few things, ok?

1. Unless you have a representation letter in hand, you and I don’t have an attorney-client relationship, capiche? I mean, I’m sure you’re a nice person. I appreciate you stopping by the blog. But it doesn’t mean anything more (I’m having a weird deja vu to a couple of bad dates in college).
2. Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. This blog isn’t meant to offer you legal advice. I’m just calling it like it is. If you have real questions – i.e. you’re hiding in a closet while the feds bang on your door – you need to consult with a tax professional. If you live in my corner of the world, that might be me. But see #1.
3. I do work at a law firm. Some might even say I’m a partner at said law firm. But this blog is in no way affiliated with my law firm. The other partner and my malpractice carrier insist on it. And I have to live with one of them. And it’s not my malpractice carrier. So, again see #1.
4. I’m not responsible for anything anybody says on this blog except me. But play nice. I don’t want to have to throw you out of here (there’s that deja vu to college again).
5. And one more thing. I’m not here to help you cheat the system. That should be obvious. But just in case it’s not, the IRS wants me to reiterate that I’m not. So consider this your Circular 230 Notice:

IRS Circular 230 notice: In order to comply with requirements imposed by the IRS, I must inform you that any U.S. federal tax advice contained in this blog is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this blog.

It will also fail to make you rich, lose weight, get white teeth or regrow hair that has been lost. I can’t guarantee dates or life matches (in fact, it’s arguable that if your friends find out that you read a tax blog, you could lose points). I have never made a good stock tip and I can’t buy your gold. I’m also miserable at making pie.

If you still have a question, check out these tips before you “ask the taxgirl.”

–

Want more taxgirl goodness? Sign up to receive posts by email, follow me on twitter (@taxgirl) or hang out with me on Facebook.Similar Posts:

• Ask the taxgirl: Making Work Pay Credit for 2011
• Ask the taxgirl: Worker’s Comp
• Ask the taxgirl: Self-employment Tax
• Ask the taxgirl: Getting Married When a Tax Liability Exists
• Ask the taxgirl: First Time Filer

Taxpayer asks:

I received workers comp most of the year, will I receive a 1099 for these earnings?

taxgirl says:

Amounts you receive as workers’ compensation for an occupational sickness or injury are not taxable if they are paid under a workers’ compensation act or a statute in the nature of a workers’ compensation act; this also applies to your survivors.

There are some exceptions to this rule. The most common exception is that the benefits do not escape taxation if they are retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired due to disability. Additionally, if part of your benefits reduces the amount that you receive from Social Security (or Railroad Retirement Benefits), that part is considered part of your SS or RRB benefits and may be taxable.

Worker’s compensation can be tricky. In some cases, if you are out of work short term, you will be allowed to return to work in a different capacity. If you return to work after qualifying for workers’ compensation, and are re-assigned to a job performing light duties, your wages are taxable just as before.

–

And let’s make sure we understand a few things, ok?

1. Unless you have a representation letter in hand, you and I don’t have an attorney-client relationship, capiche? I mean, I’m sure you’re a nice person. I appreciate you stopping by the blog. But it doesn’t mean anything more (I’m having a weird deja vu to a couple of bad dates in college).
2. Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. This blog isn’t meant to offer you legal advice. I’m just calling it like it is. If you have real questions – i.e. you’re hiding in a closet while the feds bang on your door – you need to consult with a tax professional. If you live in my corner of the world, that might be me. But see #1.
3. I do work at a law firm. Some might even say I’m a partner at said law firm. But this blog is in no way affiliated with my law firm. The other partner and my malpractice carrier insist on it. And I have to live with one of them. And it’s not my malpractice carrier. So, again see #1.
4. I’m not responsible for anything anybody says on this blog except me. But play nice. I don’t want to have to throw you out of here (there’s that deja vu to college again).
5. And one more thing. I’m not here to help you cheat the system. That should be obvious. But just in case it’s not, the IRS wants me to reiterate that I’m not. So consider this your Circular 230 Notice:

IRS Circular 230 notice: In order to comply with requirements imposed by the IRS, I must inform you that any U.S. federal tax advice contained in this blog is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this blog.

It will also fail to make you rich, lose weight, get white teeth or regrow hair that has been lost. I can’t guarantee dates or life matches (in fact, it’s arguable that if your friends find out that you read a tax blog, you could lose points). I have never made a good stock tip and I can’t buy your gold. I’m also miserable at making pie.

If you still have a question, check out these tips before you “ask the taxgirl.”

–

Want more taxgirl goodness? Sign up to receive posts by email, follow me on twitter (@taxgirl) or hang out with me on Facebook.Similar Posts:

• Ask the taxgirl: Incomplete Paperwork
• Ask the taxgirl: Looking a Gift Horse in the Mouth
• Ask the taxgirl: Making Work Pay Credit for 2011
• Ask the taxgirl: Self-employment Tax
• Ask the taxgirl: Voluntary Child Support

This story appears in the Feb. 12, 2012 issue of Forbes Magazine.

It’s that time of year when envelopes marked “Important Tax Return ­Document Enclosed” come in the mail, mixed in with the credit card come-ons. Open and scrutinize these W-2s, 1099s and K-1s right away. If they report more income than your records show, try to get corrected forms issued now to avoid a battle with the Internal Revenue Service’s document-matching computers later. Read the pointers below to avoid tripping over changes to the forms.

The 1099-B makeover
Both tax pros and financial service firms expect the new 1099-B, Proceeds From Broker and Barter Exchange Transactions, to cause mass confusion. The 2011 version, in addition to the old boxes for the date and proceeds from a securities sale, has new boxes for the date you bought a stock; your cost or basis (including adjustments for commissions and splits); whether your gain or loss was short or long term; and even if the transaction was a wash sale (one where you can’t claim a loss because you bought back the shares too soon). If your broker sends a 1099 composite ­report instead of a 1099-B, the composite must also have the new info.

Don’t be surprised, however, if some new 1099-B boxes are blank. That’s because the extra reporting is only required for stock bought on or after Jan. 1, 2011; mutual funds bought on or after Jan. 1, 2012; and bonds, options and private placements bought on or after Jan. 1, 2013. When reporting isn’t required, your broker should check “noncovered security” in Box 6. Note that an outfit like Charles Schwab, if it knows your basis on a “noncovered security” sale, will calculate your gain for you on the composite—but won’t send it to the IRS.

All this new info is supposed to help the IRS detect under­reporting of gains while cutting paperwork for taxpayers. Right. Truth is, it’s now more important than ever to keep good records to make sure what your broker tells the IRS is correct. Retain monthly statements, year-end reports and trade confirmations, and annotate them as appropriate. Warning: If you sell only some of your holdings in a covered stock, the broker must calculate your gains using the first-in, first-out method—unless you designate another method before a sale ­settles. (For advice on how to find your basis on old securities, see p. 55.)

Tattletale 1099-Ks
If you run a business or sell something on the side and accept credit card ­payments or payments through a third-party network like eBay’s PayPal, watch out for the new form 1099-K, Merchant Card and Third-Party Network Payments. This form, too, is designed to help the IRS flag juicy audit targets. Unfortunately the 1099-K reports the gross amount paid to you, with no adjustments for fees or charge-backs, so it may not match up with the (possibly smaller) amount you report on your ­income tax return from such transactions. Give your tax pro records of fees and charge-backs to explain any disparity—annotated statements from the credit card company should do.

W-2 insurance scare
Employers with more than 250 workers must begin reporting on 2012 W-2s the value of health care benefits paid on an employee’s behalf. But some are already doing it on 2011 W-2s now in the mail. The amount appears in Box 12, using code DD. If there’s a big number there, don’t panic—it doesn’t affect your taxable income. The reporting is for the new “individual mandate” in Obama’s health plan. If that mandate isn’t ­repealed or found unconstitutional, a penalty tax on folks who don’t get insurance will be phased in, starting in 2014.Similar Posts:

• Some Straight Talk On Capital Losses
• Credit Card Reporting for Tax Purposes Debuts This Month
• Putting Your Tax Bill on Your Credit Card: A Surprisingly Common Problem
• A Loss By Any Other Name Isn’t the Same: All About Capital Losses (And Gains)
• Ask the taxgirl: “Real Estate Tax” In Health Care Law?

Taxpayer asks:

I forgot to include the Schedule M with my free e-file.
Should I do an amended return or ?
Thank you.

taxgirl says:

Nope. There’s no need to amend because… there is no Schedule M for individual taxpayers for the 2011 tax year. The Schedule M was used to figure the Making Work Pay Credit but for the 2011 tax year, there is no Making Work Pay Credit; it has been replaced with the payroll tax “holiday.”

And because I can’t help myself, I’m just going to say it: this is why I hate the transitional nature of our Tax Code. Congress has literally no idea of how confused taxpayers are each time that they change the rules like this. It’s maddening. It’s expensive. And it needs to stop.

–

Want more taxgirl goodness? Sign up to receive posts by email, follow me on twitter (@taxgirl) or hang out with me on Facebook.Similar Posts:

• Making Work Pay Credit: The Basics
• Ask the taxgirl: Making Work Pay Credit & Tax Years
• 9 Things to Know About the Making Work Pay Credit and Payroll Tax Cuts
• Ask the taxgirl: I forgot to file Schedule M!
• Ask the taxgirl: I Don’t Qualify for the Making Work Pay Credit

Taxpayer asks:

If my w2′s for the year are still at single but I am married can I file single or should I file married. Is it true that if my w2′s are at single they are pulling more money and if I file married I’m not getting back what I should?
It never dawned on me that I needed to change my w-2′s

Thank you for your help.

taxgirl says:

Easy answer first: you file for the tax year based on your marital status as of the last day of the year. It makes no difference what appears on your payroll forms.

You’re right, though, to note that your marital status may affect your withholding. Your form W-2 reports withholding (as well as wages and benefits) for the tax year. The amount withheld is calculated using information which you provide on a form W-4 (downloads as a pdf).

The point of the form W-4 is to figure out how many allowances to claim for purposes of your federal income tax withholding. The general rule is that the more allowances you claim, the less withholding you’ll have taken out of your paycheck. If you claim zero, you’ll have the maximum amount taken out. If you claim a large number, you’ll have less taken out. If you do it right, you won’t owe or be owed: the absolute best scenario from a tax planning standpoint is to have your tax liability (or refund) at the end of the year be as close to zero as possible.

If you’re married, you generally add “1″ when figuring your allowances:

In addition, you usually add one allowance for each dependent. There are some exceptions to these general rules. You can make adjustments to your allowances for any number of reasons, including having dual wage earners in one family, if you claim certain kinds of credits  or if you plan to itemize your deductions. If you’re not having enough withheld (meaning you owe too much at tax time), you can adjust the number of allowances down (meaning you’ll claim fewer allowances). If you’re having too much withheld (meaning that you tend to get a large refund), you can adjust the number of allowances up (meaning that you’ll claim more allowances).

If you’re not sure what to claim, ask your tax professional or give the IRS withholding calculator a whirl. You’ll need to have the following info handy:

1. Marital status for the tax year
2. Number of dependents claimed on your return during the tax year
3. Info about child care expenses paid during the year
4. Amount of wages earned during the year and amounts withheld (including frequency of pay – best to have a recent pay stub handy)
5. Specifics about your itemized deductions, if you itemize

If you plug in all of the info, the calculator will estimate your anticipated tax (or refund) due for 2012, as well as recommendations for increasing or decreasing your allowances.

If you think you need to change your allowances, you’ll want to contact your HR folks or payroll department at your workplace.

Most taxpayers don’t have to update their forms W-4 very often. I suggest running the numbers every other year unless circumstances warrant more often. If any of the following happens to you, consider an update:

• You receive a large refund and expect the same for the next tax year;
• You owe a significant amount to IRS and expect the same for the next tax year;
• You get married or divorced;
• You have a baby, adopt a child or lose a child;
• Your child or children go away to college or move away from home;
• You buy or sale a home;
• You retire;
• You inherit a significant amount of money;
• You cash in stock options;
• You file for bankruptcy; or
• You change jobs.

This list is by no means exhaustive but should be a good start. If you’re not sure, it never hurts to ask your tax professional or check the withholding calculator.

Hopefully, that helps… and congratulations on your new marriage!

–

And let’s make sure we understand a few things, ok?

1. Unless you have a representation letter in hand, you and I don’t have an attorney-client relationship, capiche? I mean, I’m sure you’re a nice person. I appreciate you stopping by the blog. But it doesn’t mean anything more (I’m having a weird deja vu to a couple of bad dates in college).
2. Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. This blog isn’t meant to offer you legal advice. I’m just calling it like it is. If you have real questions – i.e. you’re hiding in a closet while the feds bang on your door – you need to consult with a tax professional. If you live in my corner of the world, that might be me. But see #1.
3. I do work at a law firm. Some might even say I’m a partner at said law firm. But this blog is in no way affiliated with my law firm. The other partner and my malpractice carrier insist on it. And I have to live with one of them. And it’s not my malpractice carrier. So, again see #1.
4. I’m not responsible for anything anybody says on this blog except me. But play nice. I don’t want to have to throw you out of here (there’s that deja vu to college again).
5. And one more thing. I’m not here to help you cheat the system. That should be obvious. But just in case it’s not, the IRS wants me to reiterate that I’m not. So consider this your Circular 230 Notice:

IRS Circular 230 notice: In order to comply with requirements imposed by the IRS, I must inform you that any U.S. federal tax advice contained in this blog is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this blog.

It will also fail to make you rich, lose weight, get white teeth or regrow hair that has been lost. I can’t guarantee dates or life matches (in fact, it’s arguable that if your friends find out that you read a tax blog, you could lose points). I have never made a good stock tip and I can’t buy your gold. I’m also miserable at making pie.

If you still have a question, check out these tips before you “ask the taxgirl.”

–

Want more taxgirl goodness? Sign up to receive posts by email, follow me on twitter (@taxgirl) or hang out with me on Facebook.Similar Posts:

• Taxes from A to Z: W is for W-4
• Ask the taxgirl: Do I Have To Take The Making Work Pay Credit?
• Ask the taxgirl: Form W-4
• Ask the Taxgirl: Withholding
• Making Sense of the Making Work Pay Credit (2011)

Everyone has a story about a tax return gone bad. And this is your chance to turn your bad tax move into a good one…

Have a horrible tax filing story? Car break down blocks from the post office? Ran out of paper in the printer? Dog ate your return? Tell me your worst tax filing story – or simply complain, whine or ramble about the thing (or things) you hate most about filing taxes – and win.

Three lucky readers can win their own Tax Tip Kit from [entity display="Office Depot" type="organization" subtype="company" active="true" key="office-depot" ticker="ODP" exchange="NYSE"]Office Depot[/entity]. Office Depot offers a number of options for taxpayers who want to file at home in addition to being a one stop shop for your tax needs.

The “Tax Tip Kit” features everything you need to navigate the busy tax season, including:

• Office Depot brand receipt file box to stay organized
• Ativa tax calculator
• Ativa USB flash drive loaded with valuable information on Office Depot resources and taxtips from Office Depot
• H&R Block At Home Software to simplify the tax filing experience

All you have to do to enter is share your worst tax move, your biggest tax goof or your silliest tax gaffe. Tell us your story. Leave your response in the space below as a comment (free registration required on Forbes.com). I’ll choose three winners at random from all of the entries.

Here are some more rules because, as you know, I’m a lawyer and I like rules:

• Entries must be posted in the comments section for this blog post in the space below by 11:59 p.m. EST on January 26, 2012.
• While I love my twitter followers and my Facebook fans, responses on twitter or Facebook will not be included for purposes of the contest. Ditto for emails. Comments have to show at this post below.
• Don’t panic if your comment doesn’t show immediately. If it goes to moderation because, for example, you’re new here, the time stamp on your comment is what counts. If you have difficulty registering, please send an email to blogadmin@forbes.com and copy me (tech@taxgirl.com) so that I can help if I need to/can.
• You can enter as many times as you like but you must leave a different story each time you comment.
• Offensive comments or comments that otherwise violate the comment policy will be deleted and will not be considered valid for purposes of the contest.
• Pingbacks and other links will be disregarded for purposes of the contest.
• I have to be able to contact you. That means you have to register with Forbes.com using a valid email address. I won’t publish your email address but I do need contact information for the winning entry.
• Due to shipping considerations, only United States addresses, please. Sorry, Canada, eh?
• I respect your privacy and I will not send you anything unrelated to your entry in this contest.
• By entering the contest, you agree that I may post any part or all of your submission including your name as a part of the contest announcements or promotions, with the exception of your email address.
• Finally, the giveaway is about me, me, me. It’s not affiliated with or endorsed by Forbes. So leave them out of it, okay?

Comment away!Similar Posts:

• Back to School: Special Food Needs
• Office Depot Gives Away Free Copies of Tax Returns
• EFTPS Scam On the Rise
• My Best Tax Advice Ever, Part I: Open Your Mail
• Where The Heck Are My Tax Forms?

It’s cold and snowy out today in [entity display="Philadelphia" type="place" active="true" key="pa/philadelphia"]Philadelphia[/entity] and across much of the country. It’s the kind of day where you really should stay inside and get things done… like maybe your taxes.
The IRS previously declared that the 2012 tax season has officially kicked off and this week, the IRS proclaimed that the 2012 electronic tax return filing season (or e-file to you and me) was now open for business.

The IRS has come a long way from the 1980s when e-file was still a novelty. In 1986, only 25,000 returns were e-filed. Last year, the IRS took on [entity display="McDonald's" type="organization" subtype="company" active="true" key="mcdonalds" ticker="MCD" exchange="NYSE"]McDonald’s-[/entity]like numbers, announcing more than “one billion served” in total. Of those, more than 112 million income tax returns were e-filed in 2011, representing 77% of all individual returns filed. The numbers are climbing so quickly that the IRS hasn’t automatically put forms in the mail for a couple of years now.

Why does the IRS encourage e-file? In a word: cost. When you e-file, you’re not just saving paper, you’re saving tax dollars. IRS Commissioner Doug Shulman claims that “an e-file return costs us 20 times less to process than a paper return, this program means a more efficient government that has saved America’s taxpayers hundreds of millions of dollars.”

The IRS also claims that e-file is faster, more efficient and more accurate for taxpayers. Statistically, error rates for e-filed returns are just 1%, compared to a 20% error rate for traditional paper returns.

If you want to e-file, you aren’t locked in to doing your returns yourself. There a few ways taxpayers can e-file their tax returns: using a tax return preparer, using software programs like TurboTax or TaxACT on your home computer or through IRS Free File. No matter which option you choose, be aware that the IRS does not charge for e-file. Fees associated with e-file might be imposed by your preparer or the software program but there is no charge from IRS.

Also keep in mind that e-filing doesn’t mean that you have to pay early if you owe – and it doesn’t mean that you have to use a credit card. You can e-file early and still pay with a payment voucher all the way up to April 17 (the due date for taxes this year). You can use a credit card to pay or pay by check. For the younguns, checks are those paper things from banks that women like me keep in their pocketbooks; believe it or not, you can use them to pay for stuff (in my hometown, you can still buy groceries with them).

Finally, what about those RALs (Refund Anticipation Loans)? I know you think they’re faster than the alternative but consider this: if you e-file and use direct deposit, you can get your money back in about 10 days, sometimes even faster. And not a penny of interest out of your pocket. [entity display="Promise" type="organization" subtype="company" active="true" key="promise" ticker="PMSEY" exchange="OTC"]Promise[/entity] me that you’ll think about it.

If you’re not ready to file today (because, for example, your forms haven’t arrived yet), you could try finding a tax preparer that you like or spend the day opening mail and getting organized.

Of course, all of that said, I know what I’m going to do: go play in the snow with the kiddos and the dog (yes, that’s my dog in the picture above). Enjoy your day!

–

Want more taxgirl goodness? Sign up to receive posts by email, follow me on twitter (@taxgirl) or hang out with me on Facebook.Similar Posts:

• And So It Begins: E-File Officially Opens for 2009
• One Billion Served: IRS Hits Milestone
• IRS Discontinues Automailed Tax Forms (Here’s How to Find Them)
• IRS Claims At Least 70% of Taxpayers Can E-File For Free
• Free Tax Help Available!

There’s a reason that the stock market continues to make news: over half of Americans own individual stocks, mutual funds, or stocks in a 401(k) or IRA. According to a 2011 Gallup poll, 54% of Americans hold stocks in some form despite fears of a shaky market.

While reasons for investing in the stock market vary almost as much as the number of securities available, stocks have traditionally been valued as long term investments. Generally, when you purchase a share of stock, you’re buying a piece of a company. You, along with other shareholders, are banking on the fact that the company will continue to grow and that the value of your share will increase over time. In that regard, it’s a bit like legalized gambling.

Some stocks pay dividends, which are taxable in the year issued, but many do not. The real value of stock for many shareholders is growth. When the stock is sold, the difference between the sales price and basis is subject to capital gains tax.

Basis is, at its most simple, the cost that you pay for an asset together with any adjustments. With respect to stock, basis may be difficult to calculate since shareholders may hold stock over a period of many years; inherit or gift stock; or participate in a dividend reinvestment plan (DRP). Additionally, companies may split, merge or spin off their shares.

Remarkably, prior to this year, there were no statutory requirements for brokers or other financial service providers to identify basis for tax purposes; it was up to the individual taxpayer. That changed in 2011 as a result of the Emergency Economic Stabilization Act of 2008 (sometimes referred to the “bailout bill”). Brokers are now required to file an informational return with the IRS each year which reports gross proceeds from the sale of stock together with the taxpayer’s adjusted basis.

Beginning on January 1, 2011, brokers were required to report the basis of stocks purchased after that date. If the stock is in a mutual fund, exchange traded fund (ETF) or part of a DRP, the effective date for reporting is pushed off to January 1, 2012. The basis for debt securities, options and private placements must be reported after of January 1, 2013.

Brokers must not only report basis as the amount of cash paid or credited for the purchase of stock but must also reflect adjustments for commissions and fees as well as other events that affect basis, such as a stock split. Additionally, sales must be identified as short term or long term for capital gains purposes.

Of course, stock sales are rarely done in neat packages: shareholders don’t buy and sell the same number of shares each time. Selling less than an entire position in an account can cause confusion because it’s difficult to figure the cost basis for the shares which were sold compared to the shares which remain.

Under the new regulations, the basis for most stocks will be reported using the first-in, first-out (FIFO) method, meaning that shares which were acquired first will be considered sold first unless the customer specifically identifies the shares to be sold. The rules for mutual funds and DRP stock are a bit different: the adjusted basis of those shares will be reported according to the broker’s default method unless the customer says otherwise. To keep things simple, taxpayers may average the basis of stock held in a DRP; exceptions and special rules apply so ask your broker if you’re not sure whether your account qualifies for averaging.

For the most part, the burden to report the basis of stocks now falls squarely on the financial industry, making reporting capital gains and losses easier for taxpayers come tax time. Information about basis will be reported to taxpayers, as noted above, in a staggered fashion beginning this year on a form 1099-B, Proceeds from a Broker or Barter Exchange Transaction, or on a consolidated report. Those forms, showing those shares affected by the 2011 reporting requirements, should be popping up in your mailboxes now. If you don’t see yours, be patient: brokers have until February to get them to you.

However, this doesn’t mean that taxpayers should become complacent. Keeping excellent records is still a must, as is reviewing monthly statements and sale confirmations. You should also consider meeting with advisors on a regular basis rather than waiting until the end of the year to address any concerns about sales or tax consequences. Since taxpayers can choose a reporting method or identify specific shares for sale, planning opportunities for offsetting gains with losses abound. With some careful attention, the result of the new legislation could be a lower tax bill.

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Want more taxgirl goodness? Sign up to receive posts by email, follow me on twitter (@taxgirl) or hang out with me on Facebook.Similar Posts:

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So I’m going to let you in on a little secret: I don’t prepare my own tax returns. Completely true. It is how I stay married.

You see, I used to prepare my own returns for my business and for my household. And I did just fine for a bit. But then I had three kids (and a dog). Those darn kids insisted on stuff like eating every day and having clean laundry and occasionally snuggling on the sofa. Add that to managing my business, writing my blog and occasionally running a few miles and I didn’t have a whole lot of time left over. Oddly enough, my husband felt that I shouldn’t spend the rest of it sorting out our taxes. And – much to his surprise – I agreed.

As much as I’m a control freak, I firmly believe that there’s no shame in hiring someone to help you out. In fact, I highly recommend it. An accountant or other tax professional will usually be able to prepare your simple return for between $200 and $500, depending on the complexity and your geographic location. For me, considering the time value of money (and the intangible value of my time for my family), it’s well worth the cost.

That said, I’m not insisting that you hire a tax preparer. Some folks – God love ‘em – like doing their own taxes. If you can do it on your own – and you want to – for the equivalent of $200-$500 of your own time, then do it. But if you can’t, hire someone.

Choosing a tax professional can be confusing. Here are some tips:

1. Understand what you need. Do you simply need a preparer? Do you need help with tax planning? Are you being audited? Having problems with the IRS? Depending on your situation, you might need an accountant, an attorney, an Enrolled Agent or a CPA – or more than one. We don’t all do the same thing. As a tax attorney, I focus on tax planning and tax compliance issues (appeals, examinations, FBAR reporting). I don’t prepare returns. And many accountants I know? They won’t touch appeals with a ten foot pole. Sort out what you need before you start looking.

2. Ask about qualifications. New regulations require all paid tax return preparers to have a Preparer Tax Identification Number (PTIN) and register with the IRS. Other professionals (like attorneys and CPAs) may have additional licensing requirements. Inquire about education and experience. Ask what those initials on the business cards mean – sometimes, they are more or less made up to look impressive. Yes, you can buy your way into a number of organizations in order to tack on a few suffixes. It is absolutely okay and not insulting to ask about credentials. If your tax preparer doesn’t want to tell you about his or her training, chances are, there’s a reason.

3. Do your homework. Check with professional organizations, licensing agencies and the Better Business Bureau to determine whether any complaints have been lodged against the preparer. Heck, Google around a bit. A complaint isn’t necessarily indicative of any wrongdoing, but you should regard a preparer with a number of complaints with some measure of caution.

4. Get some opinions. It’s weird that people will ask for a gynecologist’s name in a heart beat but will often remain tight-lipped about tax professionals. Ask. Ask your lawyer, your investment advisor, your colleagues and your neighbors who they use for tax preparation and tax planning services. Word of mouth is one of the best ways to find a good tax professional – and a good way to determine who you should avoid. But don’t accept an opinion as gospel (remember, this is a country full of folks who watch the Kardashians on TV so take some opinions with a grain of salt) and do some follow-up on your own.

5. Make sure the bottom line is really the bottom line. Don’t be fooled: bulk tax companies are not always less expensive than professional services firms and they tend to hit you with fees for extras and try to sell you products. If the initial fee is small, ask upfront about add ons, “accuracy guarantees” and more that might cost you money. Remember that “too good to be true” usually is. Don’t be sucked in by promises of huge refunds if you’re not sure that you qualify. And ignore preparers who base their fees on the size of your refund: the IRS has found a disproportionate number of fraudulent preparers use this technique.

6. Bigger Isn’t Always Better. *Insert random off color joke of your choice here.* Now that you’ve stopped giggling like a 12 year old, take my word for it that bigger isn’t always better. Sometimes bigger firms and bigger companies mean more resources. But sometimes they just mean bigger fees. Don’t jump to conclusions about a professional based on the size or sparkle of their office.

7. Choose someone who will stick around. I am not a fan of many bulk tax prep companies because they are gone most months out of the year. You shouldn’t have to make a call to a call center and speak with someone who will inevitably give you the run around if you have a question. I prefer tax preparers that are around more than seasonally – if yours shuts down for the year on April 19, consider finding someone more available.

8. Use your gut. If your calls or emails aren’t returned within a reasonable amount of time (keeping in mind that during busy seasons, wait times will be understandably longer), consider going elsewhere. If the staff is rude, if the tax preparer seems pre-occupied, walk away. You’re paying for a service. You deserve to be treated in a professional manner. Remember that you’re liable at the end of the day for the information on your return, not the preparer. If the preparer isn’t willing to work with you to make you feel comfortable, find someone who will.

9. Nothing lasts forever except maybe Betty White’s career. If things aren’t working out, well, then, they’re not working out. It doesn’t have to be something huge – maybe you just don’t get along. It’s okay to pay your bill and walk away. I’ve done it. Twice. And I still refer folks out to the one accountant; he’s a fine accountant, just wasn’t a good fit for us. This isn’t a “till death do us part” type deal. It’s a professional transaction. And while I believe that it makes the most sense to have a reliable, consistent tax professional (see #7) to depend on, sometimes you’re just not that into him (or her). And that’s okay.

Even if you don’t think you need a tax preparer or a tax attorney, I vote that you make friends with one anyway. No, not just because we’re cute and offer sparkling wit and cocktail party conversations… but because one day, you might need a tax professional.

Here’s what you don’t want to be doing: calling up and saying, “I need to hire an attorney to represent me in an audit. Tomorrow.” And you don’t want to be crouched at the bottom of your closet with the feds banging on your door as you desperately dial up information for the first number you can find. By then, it’s probably too late.

So all of those tips that I just offered for finding a tax pro? Here’s perhaps the most important one to add to the mix: do it now. Not tomorrow. And definitely not the week of April 10th. By that time – and trust me on this – tax professionals are tired. They might be a little cranky. They might not be so quick to return your calls and they might be a little short when they do. And you would be, too, if you’d been fed a daily diet of tax forms for the past four months (tax season officially starts in January).

There’s more to come – including how to read and understand your notices from IRS – as part of this series. If you missed my other best tax advice ever, you can find it here:

• My Best Tax Advice Ever, Part I: Open Your Mail
• My Best Tax Advice Ever, Part II: Get Some Help

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Want more taxgirl goodness? Sign up to receive posts by email, follow me on twitter (@taxgirl) or hang out with me on Facebook.Similar Posts:

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