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January Tax Tips, Part 2

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Keeping Good Records

You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year. Good record-keeping will help you remember the various transactions you made during the year, which in turn may make filing your return a less taxing experience.

Records help you document the deductions you've claimed on your return. You'll need this documentation should the IRS select your return for examination. Normally, tax records should be kept for three years, but some documents -- such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property -- should be kept longer.

In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return:

  • Bills
  • Credit card and other receipts
  • Invoices
  • Mileage logs
  • Canceled, imaged or substitute checks or any other proof of payment
  • Any other records to support deductions or credits you claim on your return.

Good record-keeping throughout the year saves you time and effort at tax time when organizing and completing your return. If  you hire a paid professional to complete your return, the records you have kept will assist the preparer in quickly and accurately completing your return.

For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available on IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

Should You Itemize?

Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses, and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than the standard deduction, you can usually benefit by itemizing.

The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2015, they are:

   Single    $6,300
   Married Filing Jointly  $12,600
   Head of Household   $9,250
   Married Filing Separately  $6,300

  • Some taxpayers have different standard deductions. The standard deduction is more for taxpayers age 65 or older and for those who are blind. It is generally less for those who can be claimed as a dependent on some other taxpayer's return.
  • Limited itemized deductions. Your itemized deductions may be limited if your adjusted gross income is more than certain amounts. This limit applies to all itemized deductions except medical and dental expenses, casualty  and theft losses, gambling losses, and investment interest.
  • Stipulations for Married Filing Separately. When a married couple files separate returns and one spouse itemizes deductions, the other spouse must also itemize and cannot claim the standard deduction.
  • Some taxpayers are not eligible for the standard deduction. They include nonresident aliens, dual-status aliens, and individuals who file returns for periods of less than 12 months.
  • Forms to use.  To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.

Choose the Simplest Federal Tax Form for Your Needs

The three forms used for filing individual federal income tax returns are Form 1040EZ, Form 1040A, and Form 1040. If you are filing a  federal income tax return on paper, use the simplest form you can. Using the simplest allowable form will reduce the chance of an error that may cost you money or delay the processing of your return.

1040EZ You may qualify to use Form 1040EZ, the simplest form, if:

  • Your taxable income is below $100,000
  • Your filing status is Single or Married Filing Jointly
  • You are under age 65
  • You are not claiming any dependents
  • Your interest income is $1,500 or less

1040A You may be able to use Form 1040A if:

  • Your taxable income is below $100,000
  • You have capital gain distributions
  • You claim certain tax credits
  • You claim deductions for IRA contributions, student loan interest, educator expenses or higher Education tuition and fees

1040 If you cannot use either a 1040EZ or 1040A, you probably need to use Form 1040. You must file form 1040 if:

  • Your taxable income is $100,000 or more
  • You claim itemized deductions
  • You are reporting self-employment income
  • You are reporting income from sale of property

Choosing the correct tax form could mean money in your pocket. Check  your tax instructions carefully. Publication 17, Your Federal Income Tax, is a helpful guide to preparing your federal tax forms. It is  available on the IRS Web site at IRS.gov or by calling 1-800-TAX-FORM  (1-800-829-3676).

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