tax preparation plymouth minnesota

WHICH TAX FORM SHOULD I REALLY USE? 1040, 1040A, 1040EZ

what-tax-form-should-i-use

There are three main forms that US citazens can use to file their annual income tax return. They are the Form 1040EZForm 1040A and Form 1040. Below is a description of each along with all the links that you will need to file your taxes.

1. Form 1040EZ is the easiest and simplest form the IRS will let you use to file your taxes. 

You need to meet the following conditions in order to use this form:

  • Your filing status is single or married filing jointly

  • You claim no dependents
  • You, and your spouse if filing a joint return, were under age 65 at the end of the year
  • Your only income sources are wages, salaries, tips, taxable scholarship and fellowship grants, unemployment compensation, or Alaska Permanent Fund dividends, and your taxable interest was not over $1,500
  • Your taxable income is less than $100,000
  • Your earned tips, if any, are included in boxes 5 and 7 of your Form W-2
  • You do not owe any household employment taxes on wages you paid to a household employee
  • You are not a debtor in a Chapter 11 bankruptcy case filed after October 16, 2005
  • You do not claim any adjustments to income
  • You do not claim any credits other than the earned income credit
  • Advance payments of the premium tax credit were not made for you, your spouse, or any individual you enrolled in coverage for whom no one else is claiming the personal exemption
  • You are not itemizing deductions and claim any adjustments to income tax credits (other than the earned income credit)

If you meet these conditions then file your taxes using the 1040EZ form. It’s the easiest way to do it. Here are links to the forms. Here is the link to the 1040EZ instructions.

2. Form 1040A is the next simplest form allowed by the IRS.

So if you don’t qualify to use the 1040EZ you should check to see if you can use this form instead. The criteria for eligibility for 1040A is listed below.

  • Your income is only from wages, salaries, tips, taxable scholarships and fellowship grants, interest, ordinary dividends, capital gain distributions, pensions, annuities, IRAs, unemployment compensation, taxable Social Security or railroad retirement benefits, and Alaska Permanent Fund dividends
  • Your taxable income is less than $100,000
  • You do not itemize deductions
  • You did not have an alternative minimum tax adjustment on stock you acquired from the exercise of an incentive stock option
  • Your only adjustments to income are the IRA deduction, the student loan interest deduction, the educator expenses deduction, the tuition and fees deduction, and
  • The only credits you are claiming are the credit for child and dependent care expenses, the earned income credit, the credit for the elderly or the disabled, education credits, the child tax credit, the additional child tax credit, the net premium tax credit, or the retirement savings contribution credit

Here’s the link to the 1040A instructions - Form 1040A Instructions

3. 1040 is the most complicated tax form and is used by taxpayers who are unable to file using a 1040EZ or 1040A.

Here is the criteria for using this form.

  • Your taxable income is $100,000 or more
  • You have certain types of income such as unreported tips; dividends on insurance policies that exceed the total of all net premiums you paid for the contract; self-employment earnings; or income received as a partner, a shareholder in an S corporation, or a beneficiary of an estate or trust
  • You itemize deductions or claim certain tax credits or adjustments to income, or
  • You owe household employment taxes
     

Here is the link for the form 1040 instructions - Form 1040 Instructions.

The IRS provides a handy online tool for determining which form you should use when filing your taxes. You can try it out here What is the simplest form to use to file my taxes? 

Below is a list of the many of other often used forms. You can use these resources when preparing your own return.


Form 1040, Schedule A - Itemized Deductions

Form 1040A or 1040, Schedule B - Interest and Ordinary Dividends

Form 1040, Schedule C - Profit or Loss From Business (Sole Proprietorship)

Form 1040, Schedule C-EZ - Net Profit From Business

Form 1040, Schedule D - Capital Gains and Losses

Form 1040, Schedule E - Supplemental Income and Loss

Form 1040A or 1040, Schedule EIC - Earned Income Credit

Form 1040A or 1040, Schedule 8812 - Child Tax Credit

Form 1040A or 1040, Schedule R - Credit for the Elderly or the Disabled

Form 2441 - Child and Dependent Care Expenses

Form 8863 - Education Credits (American Opportunity and Lifetime Learning Credits)

Form 8888 - Allocation of Refund (Including Savings Bond Purchases)

Form 8949 - Sales and Other Dispositions of Capital Assets

If you need help determing which form you need to use feel free to reach out to PJF Tax or just let us handle it for you this tax season.

YOU CHOSE WISELY - HOW TO CHOOSE A TAX PREPARER

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Fun fact of the day: Did you know over half of US taxpayers hire a professional tax preparer when it comes time to file their taxes? It’s true (at least according to the IRS). Whether you use a tax preparer or not YOU are responsible for what’s on your tax return no matter who prepares it.

Tax Accountants are trust with our most personal information. Through your discussions and documentation they know about your marriage, your income, expenses, and social security numbers. That’s information your own family might now know. All of this sensitive information means that you need to choose your tax preparer wisely. To do that take a look these essentials

First let me say that most tax preparers do a great job. With that being said each and every year some taxpayers are hurt financially because they used an unscrupulous (or just uneducated) tax preparer.

Here are the tips to keep in mind when looking for a tax preparer:

  • Check to make sure your tax preparer has a PTIN. This is a Preparer Tax Identification Number. Only tax preparers who have a valid 2015 PTIN are authorized by the IRS to prepare and file federal tax returns. But this is only the first thing to look for because just because they have a PTIN does not mean they actually have the skills, education, and training to prepare taxes.
  • Representation Rights – Only CPA’s, attorneys and Enrolled Agents can represent you in front of the IRS. It’s one thing to prepare your return but can your preparer also represent you in the case of an audit or other tax issue. This lead directly into our next thing to look for…
  • Credentials – As I mentioned that main ones are enrolled agents, CPAs (Certified Public Accountants, and attorneys. There is also a new RTRP designation which means the tax preparer had to pass a text from the IRS to show a minimum level of competency. Along with this ask if your preparer keeps up on tax matters with continuing education credits and is part of a professional organization.
  • Fees – It’s ok to ask a preparer for an estimate of the cost. For new clients this will most likely be a range such as $200-$300. The range is because they won’t know your full tax situation until they get into the details of your tax return. Some tax preparers charge by the hour, some by the form, and others a flat fee. Try to avoid tax preparers that charge a % of your refund. This can lead to a conflict of interest. Since your tax preparer will get a bigger fee if you have a bigger refund they will be very aggressive in taking deductions, credits, etc.
  • This one should be obvious but make sure your refund gets deposited into your own account. Taxpayers should never deposit their refund into a preparer’s bank account.
  • Make sure your tax preparer is available after tax season and after you file your taxes. Tax Professionals might go on vacation after a long tax season but they shouldn’t close up for the rest of the year. Issues might come up that you’ll want your tax preparer to help with.
  • Records and Receipts – Ask what your preparer does with all the receipts and other tax information that they use to prepare your tax return. Good preparers keep digital copies of your information so that they can support the preparation of your return. This also provides you will a backup copy in case you lose or destroy your original tax documents.
  • Never Sign a Blank Return – Wait until your return is finalized and you have a chance to review it for accuracy before you sign. Ask if anything isn’t clear to you.
  • Make sure your tax preparer also signs the return and includes their PTIN. This is required by law and only unprofessional tax preparers will not sign a tax return that they prepare.
  • Make sure you get a copy of your tax return. Whether it’s a digital or printed copy you should keep a copy for your own records.

Follow these tips and you should have no problem finding a good tax preparer this tax season. Don’t be afraid to ask these questions of any potential preparer. After all it’s your responsibility to ensure your tax return is accurate. Or better yet ask us! PJF Tax preparers taxes for hundreds of tax clients and is still taking on additional clients for the 2015 tax season. Call or a quote today!

FINALLY, A SHORT GUIDE ON HOW TO (PROPERLY) TAKE THE MILEAGE DEDUCTION....

Ok, I'm going to clear up a couple things on one of the most often misunderstood tax deductions of them all...mileage.

This robot isn't worried about the mileage deduction because he works with PJF Tax

First off I am specifically referring to business mileage as this is the most often used type of mileage deduction (there is also charitable and medical).

There are three types of mileage, Business, Commuting, and Personal. You can ONLY deduct business mileage. Business mileage is any mileage after you get to your main place of work. This means your drive to the office and your drive back to the office are NOT considered business mileage but commuting mileage and therefore are not deductible.

Let's go through an example to clarify. 

Joe works at the local bank. He drives from his home to the bank which is 5 miles away (commuting). Joe has a client that he is meeting at the client's office. He drives 6 miles to get there (business). He has the meeting, it goes well, and he drives back to the bank, another six miles (business). After work he drives back home, another 5 miles (commuting). After he get home he goes to the grocery store for a gallon of milk. The store is 3 miles away (personal). In total Joe drove 25 miles. Of that only 10 is deductible but all of it has to be tracked. He needs to take notes on his business mileage to prove that it was business related. He should keep the addresses, name of the client, and the time/day he visited the client.  

Other fun things to consider:

- If you have a home office you can usually take a lot more business mileage because you are generally always driving to a client location. Keep in mind your home office must be your MAIN place of business and not a secondary office.

- Travel between your home and a temporary work location is deductible

- Working during your commute (work phone calls for example) or placing advertising on your car does not make commuting mileage deductible.

- You can only ever take mileage or actual auto expense (gas and repairs), never both.

- There are apps, like mileage bug, which will help you track your mileage. Remember you NEED to have support for any deduction you are taking, including mileage. A mileage log is a good way to do so.

Here is our mileage tax organizer that we use for clients to help track mileage.

2014 Mileage and Auto Expense Worksheet

Do you need some more help with tracking your mileage properly? Contact us or schedule an appointment to have your taxes prepared today!

FAKE CHARITIES ON TOP OF IRS "DIRTY DOZEN" TAX SCAMS FOR 2015

Tax Preparation Services in Plymouth MN

The IRS just came out with a warning for charitable minded tax payers. There has been an uptick in groups masquerading as a charity. It actually makes their Dirty Dozen Tax Scams List of 2015. A list, compiled annually, showing the most common scams that taxpayers may encounter. These scams always seem to pick up during filing season. 

IRS Commissioner John Koskinen advises taxpayers to maintain vigilance when donating money. "When making a donation, taxpayers should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities RS.gov has the tools taxpayers need to check out the status of charitable organizations."

I found the tools Mr. Koskinen was referencing here

Illegal scams carry harsh penalties, interest, and possibly jail time. The IRS teams up with the department of justice to shut down these scams and prosecute the criminals running them.

TIPS WHEN MAKING CHARITABLE CONTRIBUTIONS.

  1. Watch for Charities that have similar sounding names to large national organizations. For example Instead of Salvation Army maybe its Salvation Navy....Or American Cancer Society instead is American Cancer Club. Either way stay cognizant, even though you think you have heard of them before make sure its the legitimate organization.

  2. Don't Give our your personal information - especially financial information like social security numbers, passwords, etc. When making donations you might have to provide some info but think about what they are asking for and why they would need it. Note it is common to use a credit card to make a donation so you just have to be even more certain when making a charitable contribution this way.

  3. Don't give cash. Both for security reasons and because you need to keep records of your donations for tax purposes, cash is not a good way to donate. Use check, credit card, or some other way that provides documentation.

Along the same lines fake charities tend to pop up right after natural disasters and other tragedies. Scam artists create fictitious charities or just impersonate well known charities to get money and information from well intentioned taxpayers. These people will call and email people in an affected area, even stooping so low as to call on victims of the disaster. Fake charity websites also tend to start up during these times as well.

Remain cognizant and perform some due diligence before giving away your hard-earned money.