Are You Ready to Prepare Your Taxes?

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February 2004

Note that the tips in this report are useful no matter what year: just replace 2003 with 2007 and 2004 with 2008.

As certainly as winter brings cold weather, it also brings the signs (like W2 forms) that tax time is not far away. Rather than waiting until April 15 draws near, it is smart to pay some attention to 2003's taxes as soon as possible. Here are some tips to help you prepare to do 2003's taxes and get a head start for planning 2004 taxes.

Gather Up Your Records

As tax time creeps nearer, most of us think first of gathering tax records. The basic records you need include:

• Income records
  • W-2 forms
  • 1099 forms
  • bank account statements
  • brokerage statements
  • any other records of income
• Expenses records
  • Receipts for tax deductible expenses
  • Canceled checks or other proof of payment
  • Credit card statements showing tax-deductible purchases
  • Mileage log for business use of your car
• Home
  • Statement of mortgage interest paid in 2003 from your mortgage company
  • If you purchased, sold, or refinanced a home, the records related to that
  • If you used any part of your home exclusively for business and plan to deduct allowable expenses, you'll need supporting records
• Investments
  • Brokerage statements
  • Mutual fund statements
  • Any forms such as 1099s related to investments

If you don't already have a filing system for tax records, you might want to establish one for 2004 as you search for and sort out 2003's records. Something as simple as a labeled set of envelopes or file folders or an accordion file will work great and save you time and headaches next year. Download IRS publication 552, Record Keeping for Individuals, for quick info on just what you need to save.

Obtain the 2003 Tax Forms You Need

Thanks to the Internet, getting the IRS forms you need has never been easier. You can locate and download every tax form you'll need and the instructions for each form on the Internal Revenue Service (IRS) website. The IRS website also provides lots of other information

Most states have websites where you can download forms too. Or you can use this handy page from the IRS to find a link to your state department of revenue.

Update Your Knowledge of Tax Changes for 2003

On the IRS website, you can read a quick summary of all the income tax changes for individuals for 2003 to see if any apply to you.

Look for Potential Tax Savings for 2003 and Plan for Savings in 2004

It's not too late to look for potential tax savings in 2003 even as you start to prepare your tax return here in February 2004. Certainly, it's a good time to think about what steps you can take now to save on 2004 taxes. Consider these strategies.

• Itemize deductions. If you don't itemize, consider doing so. Should You Itemize? from the IRS can help you decide if you can save more by itemizing than taking the standard deduction.
• Contribute to charity. These contributions are deductible only if you itemize. Each year, make sure to give donations before December 31. You can learn how to make sure that your gifts go to organizations that use your dollars wisely in Remar's StraightTalk Report Giving Charitable Gifts as an Informed Donor.
• Contribute the maximum to retirement accounts. This includes IRAs, 401K and other accounts. Although contributions to 401K accounts must be made by year end, you can contribute to IRAs for 2003 up until April 15, 2004.
• Review your portfolio. If you make money during 2004 when selling stocks (bonds, or mutual funds), consider selling a loser, by December 31, to offset some or all of the gain.
• Review your flexible health-care spending account. These accounts deduct money from your paycheck pre-tax. You use the money to pay for a wide range of health care expenses (not covered by insurance) and for childcare or eldercare. If you did not use up all the money in the account, consider making adjustments to the sum you contribute in 2004.
• Plan IRA distributions. If you are 70 1/2 or older, don't forget to take at least the minimum distribution from your IRA, or you will have to pay a 50% penalty on the shortfall. In the first year of distribution you have until April 1 to make the distribution, but thereafter must make it by December 31.
• Check your withholding. You don't want to be caught paying the government too much or too little. If you discover that you have a really big return coming for 2003 (I'd say more than $1000), then you may wish to adjust your withholding for the next year. Instead of having too much money withheld from your paycheck put that extra money in a savings account at the credit union and earn interest on it. But be careful, you also don't want to pay a penalty for not paying enough. Use the IRS withholding calculator to check if you are over or underpaying.

For more information

The IRS provides tax tips regularly during year, particularly during tax season. These cover a variety of topics including but not limited to specific deductions, credits, hot issues, and scams.

Prepared for Corning Credit Union by Remar Sutton & Associates, February 2004. Reviewed and updated March 2007. All rights reserved

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