Relief. Exhilaration (or frustration at having to pay *more* taxes!). Gratitude for a job well done by your preparer.

Unless you’ve filed for an extension, however you feel about your tax return…chances are, it’s done.

But, even now, we do get some questions. So, I thought I would answer some of the basic ones for you. If you have any additional questions, feel free to give us a call (800-279-3768 ) or send me an email.

We’re here for you!

1. “When will I get my refund?”
Well, the IRS does seem to have entered the 21st century.

If you had us “e-file” your return, you can check your status right now, or if you had us mail a paper return, after about 3 to 4 weeks.

When you’re checking with the following options, make sure you have a copy of your tax return on hand or know your “filing status”, SSN and the exact dollar amount of the anticipated refund.

• Online: Go to IRS.gov and click on Where’s My Refund.
(or go right to: http://www.irs.gov/individuals/article/0,,id=96596,00.html)
• Automated Phone: Call 1-800-829-4477 24 hours a day, 7 days a week for automated refund information.
• In-Person Phone: Call 1-800-829-1954 during the hours shown in your IRS form instructions. the hold time for the IRS is ... somewhat of an issue

2. “Do I need to keep a copy of my return?”
Yes, for a *minimum* of three years. There’s all kinds of contexts where it’s useful. We do keep one on file, on your behalf, but it’s just smart and safe for you to keep one in a secure place at home. (I’ve already written about Amended Returns, and you need a copy for that process, of course.)

As for the supporting documents from your return, anything that relates to a home purchase or sale, stock transactions, retirement, business or rental property, should be kept much longer than the three years.

3. “I think there’s a mistake in my return. What should I do?”
Sometimes, you’ll find a receipt or a documentation after April 17th which really would have changed your prior year tax return. That’s, again, when you would have us file an “Amended Return”. Here are some other common reasons to Amend…
• You neglected to report some income earned.
• You claimed deductions or credits you should not have claimed.
• You did not claim deductions or credits you could have claimed.
• You filed under one filing status, but you should have filed under another.

You might have other questions, which I haven’t addressed here. Let me know!

(And don’t forget to write me back a quick note about your experience! THANK YOU!)

To more of your money in your wallet!

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

                          

But what about your friends? And what about your previous years?

Well, since the filing deadline is already upon us, they (and you) might think that the proverbial “fat lady” has sung on 2011 returns (and 2010 and 2009). Not so.

Because according to the most recent report on the matter, issued by the General Accounting Office, taxpayers overpay the IRS almost $1 billion every year due to incorrect itemization and preparation.

What’s worse is that those who prepared their own taxes (with a software, or on their own) are the most vulnerable, according to the report. But did you also know that taxpayers who used one of the “big chain” preparers are almost as bad off?

An excerpt from an additional report from the GAO: In a Limited Study, Chain Preparers Made Serious Errors

In GAO (United States Government Accountability Office) visits to chain preparers, paid preparers often prepared returns that were incorrect, with tax consequences that were sometimes significant. Some of the most serious problems involved these preparers…

1. Not reporting business income in 10 of 19 cases;
2. Failing to take the most advantageous post-secondary education tax benefit in 3 out of the 9 applicable cases; and
3. Failing to itemize deductions at all or failing to claim all available deductions in 7 out of the 9 applicable cases.

More clippings from the report:
* The 19 paid preparers we visited arrived at the correct refund amount only twice. On 5 returns, all for the plumber, they understated our refund amount by a total of $3,465.
* All 19 of our visits to tax return preparers affiliated with chains showed problems. Nearly all of the returns prepared for us were incorrect to some degree, and several of the preparers gave us very bad tax advice, particularly when it came to reporting non-W-2 business income. Only 2 of 19 tax returns showed the correct refund amount, and in both of those visits the paid preparer made mistakes that did not affect the final refund amount.

So what can your friends do about this? And what could YOU do about it, if you didn’t have us handle your taxes in prior years? Simple: file an “Amended” Return.

Many tax businesses don’t provide this service, but even though we’ve completed our clients’ returns, we WILL review any of your friends’ returns–at no charge.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

                          

However, since YOU have chosen to invest yourself in our services (or at one point considered it), you are probably in the second group: those who would love to pay less in taxes, THIS year.

There are two main things which you need to understand:

Immutable Fact #1: Our tax system is not fair.
Yes indeed — the Mitt Romneys, Warren Buffetts, Barack Obamas, Rick Santorums etc etc operate under a vastly different system than most “regular” taxpayers. This is NOT because they are politically-connected (though they are), and the sooner you quit complaining about those who *seem* to be connected … and make the decision to JOIN their ranks, the sooner you will pay less in taxes.

Because all of those men, and other people like them, understand the second fact…

Immutable Fact #2: A tax return is a report, NOT a strategy.
Yes, we’re pretty good at coming behind with our magic brushes and cleaning up the mess made by many of our clients in their finances and taxes. But there is a much better way to fly.

It’s called tax planning, and it’s essentially comprised of three parts:

1) Strategic review: Assess the current situation, and identify short-, mid-, and long-term strategies to lessen your taxes, and grow your income.
2) Implementation: This can be a little tricky (especially if you do it yourself), because there are bound to be accounting and local regulatory questions which arise. We recommend that you stay with your same team who developed the tax strategy so they make sure you’re doing what you need to do.
3) Proper compliance: There are plenty of folks out there who will give you “the secrets to paying less taxes!!!” — but are they willing to put their name on a dotted line and defend it? If not, RUN from these people. They are true blowhards. Or worse, they know that their advice will lead to a fraudulent return.

But the main thing to understand is that in order to REALLY get your tax situation improved, you MUST plan ahead.

Otherwise, you’re just cleaning up a mess when filing your tax return.

I hope I didn’t ruffle too many feathers … but if so, understand that most of all, we are here to walk with you no matter WHAT kind of planning you do (or don’t do)!

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

                          

Yes, this is a radical idea to think about, but consider: what does this refund represent to you?

If you’re like many families, it’s a bit like “found money” — i.e., an unexpected windfall. And, in those scenarios, it’s tempting to hoard, or to splurge.

However, as with other windfall scenarios which I’ve written about in the past, one of the smartest things you can do is to give a portion (at least) of it away.

Why do I suggest this?

Well, I believe it’s actually “enlightened” self-interest in the long run. And not just in our sense of feeling good.

I see the balance sheets of folks from every walk of life, and over the years I’ve noticed an interesting phenomenon: individuals and families who make giving a priority, even when they aren’t “wealthy”, seem to do better in the long run. And I mean financially–not just in their state of mind.

(Though, there are significant “state of mind” reasons for giving. Have you seen, as I have, that those who freely give seem to be more pleasant company?)

Before you write this off as being “ask the universe” mushiness, understand that A) I don’t subscribe to that baloney and B) I am merely reporting an observed phenomenon. Do with it what you will.

You see, I make it a point to seek to observe how money works. And, for some reason — money gets attracted to those who aren’t only in hot, desperate pursuit of it. It’s almost like in romance — potential lovers are usually turned off by the overly-aggressive seeker.

I know it might feel painful. But trust me when I tell you that it can actually provide you with a deeper feeling of joy than if you choose to cling tightly to everything which comes your way.

I hope I didn’t ruffle too many feathers … but if so, understand that most of all, we are here to walk with you no matter WHAT your balance sheets look like!

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

                          

Even if for some strange reason you won’t be using our cost-effective services this year, feel free to use this list as a handy guide…

Personal Data
Social Security Numbers (including spouse and children)
Child care provider tax I.D. or Social Security Number

Employment & Income Data
W-2 forms for this year
Tax refunds and unemployment compensation: Form 1099-G
Miscellaneous income including rent: Form 1099-MISC
Partnership and trust income
Pensions and annuities
Alimony received
Jury duty pay
Gambling and lottery winnings
Prizes and awards
Scholarships and fellowships
State and local income tax refunds
Unemployment compensation

Homeowner/Renter Data
Residential address(es) for this year
Mortgage interest: Form 1098
Sale of your home or other real estate: Form 1099-S
Second mortgage interest paid
Real estate taxes paid
Rent paid during tax year
Moving expenses

Financial Assets
Interest income statements: Form 1099-INT & 1099-OID
Dividend income statements: Form 1099-DIV
Proceeds from broker transactions: Form 1099-B
Retirement plan distribution: Form 1099-R
Capital gains or losses

Financial Liabilities
Auto loans and leases (account numbers and car value) if vehicle used for business
Student loan interest paid
Early withdrawal penalties on CDs and other fixed time deposits

Automobiles
Personal property tax information
Department of Motor Vehicles fees

Expenses
Gifts to charity (receipts for any single donations of $250 or more)
Unreimbursed expenses related to volunteer work
Unreimbursed expenses related to your job (travel expenses, entertainment, uniforms, union dues, subscriptions)
Investment expenses
Job-hunting expenses
Education expenses (tuition and fees)
Child care expenses
Medical Savings Accounts
Adoption expenses
Alimony paid
Tax return preparation expenses and fees

Self-Employment Data
Estimated tax vouchers for the current year
Self-employment tax
Self-employment SEP plans
Self-employed health insurance
K-1s on all partnerships
Receipts or documentation for business-related expenses
Farm income

Deduction Documents
State and local income taxes
IRA, Keogh and other retirement plan contributions
Medical expenses
Casualty or theft losses
Other miscellaneous deductions

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

                          

Look–don’t be scared to take deductions and losses you’re entitled to, but don’t take tax positions you aren’t comfortable defending. If you take reasonable tax positions, you’ll likely find you won’t end up needing to defend them. And if you do face an audit, it will likely be far easier.

2. It doesn’t all add up.
This seems like it should go without saying, but make sure you add, subtract and multiply accurately. Check your numbers through each step and do some simple math checks when you finish. If you do make a math mistake, you are likely to get a math correction notice from the IRS. This isn’t an audit. But our goal is to minimize your interaction with the IRS bureaucracy, which, ah… isn’t known for the best mail handling practices.

3. Lost 1099
This can be confusing, because the Form 1099 comes in many varieties, including 1099-INT for interest, 1099-DIV for dividends, 1099-G for tax refunds, 1099-R for pensions and 1099-MISC for miscellaneous income. These forms are sent by payers of such funds to both you and the IRS.

So regardless of how many 1099s you receive, make sure they all are accounted for on your return. There are also Forms 1098 which lenders send (to you and the IRS) recording how much interest you paid. The IRS matches your return against the 1098s and 1099s. So one sure way to guarantee an IRS query is to fail to account for something! If a Form 1099 is wrong–say it reports more income than you had–you can explain or deduct it on the return, but you need to first report it.

4. Suspicious OVER-reporting
I’m not talking about under-reporting income, or holding necessary information back. But you’d be surprised how many professionals and amateurs alike try to submit too much *supporting* information. True, if your return is complex, you may need to add explanations or disclosures in footnotes. Be concise, truthful and accurate, but don’t provide copies of sales agreements, settlement agreements, bank statements, etc., unless you are later asked to by the IRS.

Disclosures can be made on regular paper or special IRS forms. A Form 8275 “Disclosure Statement” on plain paper can be used any time you need to disclose something that can’t be adequately disclosed on the forms. Form 8275-R “Regulation Disclosure Statement,” is for disclosing positions that are contrary to IRS Regulations or other authority. You shouldn’t be filing a Form 8275-R–or taking a tax return position that would require it–without professional help.

Frankly, though, any disclosure statement should be checked with someone who can take you by the hand and ensure it’s done properly (ahem).

5. Fighting unnecessary fights.
Here’s where some of our clients have gotten in trouble in the past, despite our admonitions: If you take reasonable tax positions, and complete your return accurately, checking your math, why should you pay a bill if the IRS sends you one? Frankly, it’s a matter of practicality (and wisdom) rather than principle. It just doesn’t pay to fight with the IRS on small matters. So don’t get into the bureaucratic system and risk bigger problems for a few dollars. Just pay it and move on.

6. Ticky-Tack Prior Year Amending
Here’s the reverse situation of my previous point: amended returns are reviewed much more regularly than initial returns. So if you forgot a deduction or otherwise think you can get a small amount back by amending, think twice before amending your return (i.e.–consult with a pro). Consider whether you might have bigger problems if other matters on your return, unrelated to the amendment, are reviewed. Yes, you can win a battle…and lose a larger one.

7. Trying to go it alone.
Yes, this is a bit self-serving — but I’ll also make a “damaging admission” here: some tax professionals argue that a return prepared by a professional is less likely to be audited. However the facts are that there’s little reliable data to support it. That being said, having a professional prepare your return will give you the added firepower of years of experience in handling such matters in your corner.

So to absolutely ensure that whatever happens, you’ll have such a someone at your side — and that your back will be guarded on the front end, give us a call: 800-279-3768 .

And a last word: No matter how careful you are, there’s no way to guarantee you’ll never have a tax controversy. Sometimes your number just comes up. But when your number is called … make sure you aren’t alone.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

                          

But sometimes such “blessings” end up as curses to those who aren’t prepared.

Consider former baseball star Lenny Dykstra, who recently filed for bankruptcy in 2009 after once having a net worth estimated at $58 million. And, of course, the stories of lottery winners has become so pervasive that Hollywood has even begun using it as regular plot device on TV.

So — a few quick essentials for you to consider, should you find yourself on the receiving end of a small fortune. These aren’t pieces of investment advice, per se, but rather some guidelines which will help you emotionally handle the new situation:

1) Move slowly at first.
Take some time to let it sink in and get through the emotion of it all. Most of the bad decisions made with sudden wealth happen in the first couple months. So lock it up in a low-yield savings account for three months, proceed as normal, and use that time productively.

Do this during that time…
2) Circle back to your life goals, and evaluate how the money will help you achieve them. Just because you’ve suddenly been given some cushion, doesn’t mean your life has to radically change. It might get easier … but if you leave behind the goals you created BEFORE this windfall, it’s more likely that it will get harder.

3) Find a disinterested advisor to be a buffer. It’s often best to work with someone who already has experienced handling the finances for people of means. That way they, too, won’t get caught up in the emotion of it. Let them be your “go to” gatekeeper for your greedy cousin or high school friend with those “can’t miss” investment ideas.

4) Immediately, give a portion of it away. I’ve written about this dynamic before, but there’s something special which happens inside your mind when you give away your money: it loses its grip on you, ever so slowly. And, far from turning you into a profligate (and unwise) giver, what can happen is that you aren’t as affected in your character by the sudden influx of funds. Which means that you don’t become more flashy, nor do you become a tightwad.

5) And, of course, assess your tax strategy. Coming from me, this should be a no-brainer, but every gift has a variety of ways by which it can affect your taxes. And many of the moves which we can help you make can protect you greatly.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

                          

Unfortunately, these consequences don’t often carry much teeth for employers and sometimes HR departments or very small businesses don’t get their act together (probably because someone competent isn’t helping them! –ahem–), and … the W-2′s take a while.

(Here’s a link to concise information about what happens on the business owner side of things: http://smallbusiness.chron.com/happens-dont-make-w2-deadline-employees-15702.html)

If you haven’t gotten your W-2 by the end of next week, here are some basic steps for you (you might want to print out or save this email, by the way):

1) Contact your payroll department/boss. Be nice about it — after all, they’re just as burdened by the paperwork junk as you are!

2) If, however, the days roll by and the form is indeed lost or your employer is inordinately slow in issuing a replacement, or you worked for a company that went out of business and there’s no one to bug about getting a W-2 … what then?

“Make” your own! Well, actually, you contact the IRS at this number: (800) 829-1040 with the following info from your last paystub handy:

Year’s wages.
Payroll taxes withheld.
Federal and state income taxes withheld.
Contributions to your company retirement/401(k) plan.
Employer’s tax identification number.

Wait on hold, and ask for Form 4852. Basically, this will inform your employer “officially” that they’re delinquent, and you can even use this form in a pinch, if your employer never gets their act together.

*** Want the BEST solution? Let us handle all that junk for you in the first place … which is part of what we do!

Well, I’ve gotten this far in this email and I realize that I’ve run out of space to go into my debt-defeating strategies for you. You’ll have to tune in next week, when I break it down in the “Real World”, as they say.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

                          

This was based on numbers from 1999 to 2006, and is probably even higher in recent years, as the weak economy may have led more people to hide money from the government. As an example, the average tax refund decreased by $100 in 2011 — perhaps people are reporting less income in order to keep more of their money.

Now, it’s hard for us wrap our heads around how much money that really is. Here’s a way to do so: Recently, Congress was unable to agree on a plan which would reduce the national deficit by $1 trillion over 10 years. Over that same time period, tax evasion will cost us well over $3.3 trillion.

Given my profession, perhaps it’s obvious that I’m a big proponent of everyone following the tax rules. When we don’t, it means that everyone else has to pick up the slack. And the consequences of all of this reporting about tax fraud is greater scrutiny on honest taxpayers, and higher tax rates.

The IRS is Catching More Tax Evaders
The “good” news is that the IRS is doing a better job of catching people who aren’t paying their fair share of taxes. Fraud investigations increased by 14% in 2010, while prosecution recommendations (cases that the IRS thinks should be brought to court) increased 18% and convictions increased by 4%.

Again, it’s possible that some of these increases are due to the economic situation of the past few years, but the fact that the IRS decreased its investigation time by nearly 40 days is a sign that the IRS is doing a better job.

Don’t Give In To The Pressure; Avoid Taxes — LEGALLY
Here’s what you should understand — the rise in tax evasion means that the IRS is continuing to increase its scrutiny on every return. But that doesn’t mean you have to give up the fight! There are innumerable LEGAL ways to avoid paying too much in taxes. And, unfortunately, software programs and fly-by-night tax shops don’t do a very good job of proactively seeking them out for you.

But perhaps you know someone who does?

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

                          

Maybe you’ve heard about it? Well, like many such things, there are, shall we say … strings.

First of all, here are the restrictions: it only covers those filing the 1040EZ federal form, which covers only the very simplest tax issues. It can’t be used by anyone who has dependents, makes more than $100,000 per year, is age 65 or older, claims adjustment to income like alimony or tuition deductions, or itemizes deductions. Thus, homeowners who deduct mortgage interest or people with large charitable contributions can’t use the 1040EZ.

Plus, filers have to pay fees for state tax preparation and any other fees incurred — which have a tendency to pile up.

Asked by stock investors why said company was doing this, an executive replied: “Our ability to monetize this program means a minimal impact on our net average charge,” said company Retail Tax President Phil Mazzini told analysts on Dec. 7. (source)

It’s always enlightening to look at executive interactions with stock analysts to see why public companies do what they do, I’ve found.

So — in summary: don’t be seduced by the siren call of getting something for nothing. You usually end up paying for it, in a whole host of ways.

In fact, one of OUR revenue centers over the years has always been in fixing the mistakes made by these “big box” retail tax outfits and off-the-shelf software programs, and discovering loads of missed opportunities and overpayments.

(Because, speaking of software: do you remember when our current Treasury Secretary used the leading tax software to do HIS taxes, unintentionally created a bunch of errors with it, and then blamed it for all of his tax problems in front of the Senate? Not an uncommon issue, I’m afraid.)

The old adage *is* an adage because it’s so often true: you get what you pay for. It’s the foundation for a stable economic system because it’s almost always true.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia