Save money, madness with your tax preparer

For basketball fans, March Madness means office pools, great TV-watching, and dramatic last-second buzzer shots. For your tax preparer, it means something different altogether.

"The biggest frustration is that clients coming to appointments think they're ready and they're still missing stuff," says Steven Garcia, a CPA from Eastchester, N.Y. "If you're supposed to have six items and you only have five, I can't do anything with it."

That can delay preparation of your return and cost you money.

Here are three things Garcia says folks often forget to bring:

•Closing/refi letter. If you had a real-estate closing or refinance in 2006, your preparer needs the official documentation. 

•Real-estate tax receipts. If you paid your own real-estate taxes rather than having the mortgage company pay them, bring in the receipts from your municipality. They won't be listed on the mortgage-interest document.

•Cost basis. If you sold securities, you need to give your preparer the original basis to determine your capital gains. The basis is either the price you paid for the securities, or what they were worth on the day you inherited them.

That third item can be hard to uncover if the securities have morphed through spinoffs or mergers since they were purchased, or if you've transferred from the original brokerage. Garcia says clients can save money on his $200 hourly fee by researching the basis themselves (See item #6 in our article, 8 ways to avoid tax-time headaches).

Garcia says clients also would save his and their own time by filling out the "organizer" that he and lots of other preparers send to their repeat clients early in the year. If you haven't received such a worksheet, ask your preparer for one or create your own personalized one at the H&R Block web site. Block's Organizit software takes a couple of minutes to fill out. (Note: I was only able to print the tax preparation checklist--called Takeit--by going to the last section--called Thatsit--and clicking on the print box.)

Music to do taxes by

What's the best background music for doing taxes? Every human experience that involves emotion has its songs. For me, tax preparation elicits a passel of moods: dread, boredom, anxiety.  Of course, what comes up for you hinges on whether you're paying or receiving, and how much effort it's going to take either way.

These titles, if not the lyrics themselves, say it for me:

"I Don't Owe You Anything," sung by The Smiths
"Pay the Man," sung by Offspring
"Make No Mistake," sung by Seeded Crown
"April Fools," sung by Rufus Wainwright
"Cheater," sung by Judas Priest
"Driving Me Crazy," sung by Boyzband
"This Mess We're In," sung by P.J. Harvey
"I'm Broke," sung by Limp Bizkit
"Workin' It Out" sung by Cyndi Lauper
"Give Me Just a Little More Time," sung by The Chairmen of the Board
"When Will This End?" sung by Korn

If you're among the fortunate two-thirds of folks expecting a refund, you might appreciate "We're In the Money," music by Al Dubin, lyrics by Harry Warren. But then, many people use their spring windfall to pay bills or add to savings; they're not exactly buying the Ritz.

Of course, the "classic" tax song is probably the Beatles' Tax Man, but my current favorite is "Good Morning Heartache," by Ella Fitzgerald. The lyrics aren't about taxes, but they beautifully reflect the "ugh" I feel when I'm halfway through Schedule A and growing certain I'll be visited again by the AMT. (With all due respect to Ella, who grew up in Consumer Reports' home base of Yonkers, N.Y., I prefer Billie Holiday's styling of this song.)

So far, my lyric searches haven't turned up any songs with "exemption," "deduction" or "refund" in the title. But for a song dedicated to the trauma of tax time, there's none better than "Do the W-2" by David Wilcox. At least this songwriter pulls some fun out of filing.

Everybody do the split ... refund!

Here's an idea whose time has come: split refunds. This year, for the first time, the IRS is letting us split our refunds among up to three direct-deposit accounts. No longer do we have to wait for one big, fat amount and then split it up ourselves.

I like this idea for two reasons. First, it acknowledges that while most of us would like to save a portion of our refunds, we may also have leftover holiday and winter-break bills to pay. (For advice on what do do with a refund, check Many happy tax returns.) Second, it forces taxpayers to use direct deposit, which is more secure and faster than a paper check.

To do a split refund, you'll have to follow a few rules and fill out Form 8888, Direct Deposit of Refund to More Than One Account, available on the Forms and Publications page of the IRS Web site.

Interestingly, while split refunds can only be done through electronic funds transfers, you don't have to file your tax form electronically to use them. But I recommend you try filing electronically anyway. The IRS reports that electronically-filed forms contain fewer errors than paper forms, and generate refunds about two weeks faster.

IRS afraid of $$$?

The IRS could use some help from a good graphic designer.

Take its Form 1040EZ-T. It's meant help low-income people--those who don't earn enough to file a tax return--get a rare giveback:  A one-time-only telephone excise-tax refund. For most people, the refund is worth from $30 to $60 per household. How much you get depends on how many exemptions you'd be eligible for if you did file your income taxes. That number goes on Line 1a.

But the IRS recently said a lot of people are filing the 1040EZ-T without requesting a refund amount. They're leaving Line 1a blank. I recently helped my aunt fill out her 1040EZ-T, and almost made the same mistake.

Here's why: Because Line 1a is the only line to fill out aside from your personal information, it gets lost on the page. I got so busy filling out direct-deposit entries--putting her bank account's routing and account numbers in the little boxes--that I missed Line 1a. And even when you see it, it's not clear where to write that $30 or $40 or $50 or $60. There's a box to the far right of the line, but do you put the dollar figure to the left of the box or inside it? Should you write $30 or $30.00? Include a dollar sign or not?

If you don't regularly fill out a tax form--and don't read instructions--you could easily miss this. Even I, who have filled out my share of tax forms, nearly goofed.

The IRS could have made this all so much easier by making Line 1a big, fat and visible, and even adding a "$" sign to the left of that box.

The IRS isn't shy about collecting $$$ from us. They shouldn't make it so hard to get $ back.

For tax cheats, opportunity rings

Is it a celebration of American ingenuity or truly pathetic that people are allegedly trying to cheat on a new tax rebate that's less than two months old?

The IRS recently reported it's been getting a worrisome number of tax returns requesting unreasonably high telephone-excise-tax refunds, from individuals filing through professional tax preparers. In some cases, these suspected cheats requested thousands of dollars, suggesting they paid more for telephone service than they earned in 2006. In other cases, they asked for as much as $30,000, hundreds of times over what would have been expected. Last Friday, the agency served search warrants at tax preparation businesses in seven cities, closing businesses, seizing computers and documents. Earlier, it said it was investigating 22 preparers who together have filed more than 1,500 questionable returns. If found guilty, they could face criminal charges, and their clients could face audits and have their refunds held.

The telephone excise-tax refund is a one-time-only goody, the result of a court decision striking down a tax collected since the 1890's. Most  of us will ask for the standard refund of between $30 and $60, which is based on claimed exemptions. But if you're in business or think you'd get more by itemizing, the IRS says you can lay out those figures in detail. And a number of tax preparers did, apparently thinking they could reap a windfall.

The real crime is that lots of people who didn't earn enough to file a tax return for 2006 may be eligible for the telephone-tax rebate, and don't know it. Or, the IRS reports, they've filed the appropriate form, 1040EZ-T, and left out important information that will delay their rebate. More on that in a later blog...

Year of the Stuck Pig

The Chinese New Year, which starts February 18, welcomes the Year of the Pig. I can't help thinking how apt that title is for this year's tax season, especially if you add the adjective "stuck" before "pig." I'll bet many Americans are feeling skewered by an arsenal of new, confusing tax provisions and instructions, courtesy of IRS and the last Congress.

Most confounding are three invisible tax breaks, which are available to millions of Americans, but don't show up this year's tax forms. They give potential benefits to teachers, college students and their parents, and residents of several states that don't collect income tax. But since last term's Congress waited 'til mid-December to act--after the IRS had already finished and printed its tax publications--those deductions are not on the forms. If you don't use tax software or a professional, you'll have to follow the IRS's ad hoc directions pretty carefully to know how to claim them. Don't blame the IRS for this one, though. Our elected public servants dragged their feet, and now we suffer.

A couple of other new items work in our favor, but again,they're apt to confuse. Earlier this year, the IRS changed the federal tax deadline to April 17, giving most of us one more day to file, fund our IRAs and do the other stuff we always do on Tax Day. I guess someone at the agency figured all Americans should get the same break the folks in Washington, D.C. get; their 2007 deadline has always been April 17, due to the district's Emancipation Day holiday on April 16. Unfortunately, the official instruction booklet, Publication 17, still says Monday, April 16 is the due date for most of us. And I envision fights across the country late Sunday the 15th, as one spouse insists taxes are due tomorrow, and the other disagrees.

Then there's the telephone excise tax refund, a cool, one-time freebie. Any American who was billed for long-distance service within a 41-month period extending through July of last year is eligible for a refund, typically $30 to $60. This one is on Form 1040, so you shouldn't miss it. But people who don't earn enough to need to file a return can ask for it, too, and apparently many are confused about what to do. The IRS reports that a lot of folks are using the proper form, 1040EZ-T, but forgetting to ask for a specific amount. And there are undoubtedly many others who don't even know they're due the refund.

According to my sources, 2008 is the Year of the Rat. I'm sure our folks in Washington will find a way to make that tax season live up to its name.