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Alan J. Lyon: Tax season is here so set aside time to prepare

It’s Your Money

Posted: January 6, 2010 9:20 p.m.
Updated: January 7, 2010 4:55 a.m.
We now enter the fifth season of the year - tax season. The New Year has started and Uncle Sam wants you to settle up your taxes for last year.

Getting yourself organized and prepared now will save a lot of agony later. Here is what you need to do:

* If you run a business, W-2 and 1099 forms must be issued by Jan. 31. 1099 forms must be given to all independent contractors whom you paid more than $600 during the year. Don't forget that your nanny also needs a W-2.

* Watch for tax documents in your mail like your W-2 or 1099 forms, broker statements, bank interest, mortgage interest paid, etc. Create a checklist of all your accounts so you know when you have everything.

The IRS will confirm wages, interest, stock sales, retirement distributions and other income to the amounts reported on the tax return. Even a small amount of missing bank interest will result in a notice if the IRS knows about it. 

* If you received unemployment income, it is taxable and must be included in your tax return.

* When the stock brokerage 1099B and year-end statement come, examine it for sales of securities. For each security sold during the year, you need to know how much it was purchased for.

The purchase information, also called a cost basis statement, is usually included in the year-end summaries, not the 1099B tax form. 

* If you're self-employed, you have a bit more work to get organized. Track down all receipts and documentation for business-related expenses, from the mileage records you kept when using your car for business, to the office equipment and supplies you bought and the utility bills you paid for your home-office.

* Did you look for a new job this year? Kept your job, but had to shell out for work-related items and never got paid back? All of these situations can help reduce your tax bill, as long as you've got the documentation.

In the case of job searches, find those receipts for anything related to your hunt - as long as you're looking for work in the same field.

If you kept your current job, but had to pay for some items your boss didn't reimburse you for - travel expenses, uniforms, union dues, subscriptions - then these can be deducted as miscellaneous items on Schedule A.

Again, you'll need the receipts, so go through your paperwork collection carefully.

* Now is an ideal time to review your financial affairs. You have to gather information to prepare your tax return at this time.

Why not take one more step and do something positive for your financial well-being? Review your investments, insurance and credit use. Make a savings plan for the coming year.

Don't forget the kids
Children who have income may have to file income tax returns. If your child had wage income of $5,700 or more, they need to file a tax return. If the child earned less than $5,700 and the employer withheld tax, file a return to claim a refund.

If your child has investment income (interest or dividends), you may need to file Form 8614 or 8615 with your tax return.

Avoid common mistakes
The most common mistake is math-related. Mistakes in adding up the number or transferring amounts from one schedule to the next will result in an immediate notice from the IRS. Using a tax preparer or software will help reduce math errors. Double-check all Social Security numbers for yourself, spouse and dependents.

The tax return must be signed and dated; the IRS will send the tax return back if it is unsigned or the W-2s are not attached.

Need more time?
If you cannot complete your tax return by April 15, you can ask for a six-month extension until Oct. 15 by filing IRS form 4868.
However, the tax must still be paid by April 15. There is only an extension for filing the paperwork, not the tax.

Alan J. Lyon CPA specializes in tax planning, tax preparation and consulting for individuals and businesses in Santa Clarita. He can be reached by e-mail at His column reflects his own views and not necessarily those of The Signal. "It's Your Money" appears Thursdays and rotates between a handful of the valley's financial professionals.


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