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IRS CIRCULAR 230 NOTICE:
 To ensure compliance with requirements imposed by the IRS, we inform you that statements on this website, that could be construed as federal tax advice, are not intended or written to be used and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or regulations of other  governmental taxing authorities or agencies. Furthermore, this website is not intended or written to support the promotion or marketing of any tax schemes.
 

Date last modified: 10/25/11

Tax Planning and Preparation for Individuals

Personal taxes are based on income minus deductions and personal exemptions.  Some taxpayers qualify for tax credits which may further reduce their tax.  All taxpayers must gather documents reporting income received during the tax year such as wages, unemployment, interest, dividends, stock sale proceeds, pension/retirement account distributions, Social Security, gambling winnings, income from "side" or casual jobs, self-employment income, rental property, alimony received, distributions from partnerships, corporations and estates, etc.  Barter and trade for services or product must also be reported as income.  Forgiveness of debt and abandonment of residence may also generate taxable income.

Determining your tax filing status takes many factors into consideration.  Briefly, if you are unmarried without dependents living with you, you file as Single.  If you are married, you file Married Filing Joint or Married Filing Separate.  If you are married, have lived apart from your spouse for more than six months during the current tax year and are providing a home for dependents living with you, you might qualify to file as Head of Household. 

If you are legally divorced by the last day of the tax year, you file Single if you have no dependents, Head of Household if you have qualifying dependents.  Finally, if you lost your spouse during the tax year and you have minor children living with you, you may qualify to file as Qualifying Widow(er) for two additional years as long as you remain unmarried.  In Oregon, couples who are Registered Domestic Partners, must file their state return either as married joint or married separate.  Each partner files his/her federal return as single.

Maintaining a home for determining Head of Household tax filing status includes the following expenses:

The person who pays more than one-half of the total cost of maintaining a home meets the requirement of "providing a home for a dependent".  The dependent must also live in the home for more than six months during the tax year.

Taxpayers use one of three standard forms to complete their federal taxes:

• 1040-EZ, the "short" form for taxpayers under 65 with no dependents, taxable income under $50,000 and interest income under $1,500

• 1040A for taxpayers with or without dependents, with taxable income less than $50,000 and some capital gain income, taking the standard deduction and not self-employed

• 1040, the "long" form for all other taxpayers.

All taxpayers are allowed a standard deduction based on their filing status.  The standard deduction figures change each year.  Taxpayers over 65 and/or blind are allowed higher standard deductions.

Taxpayers who have more allowed deductions than the standard deduction amount may itemize their deductions on Schedule A.  If you plan to itemize your deductions, good record keeping throughout the year is essential.   If audited, you would need to provide proof of the expense.  Keep your records to justify your itemized deductions for at least seven years. 

If you change your mailing address during the year, it is important to make sure these reporting documents reach your new address. IRS reviews returns to make sure all W-2s and 1099s issued in your Social Security number are reported on your taxes. 

April 15 is the annual due date for personal income taxes.  Some people can file an extension to secure more time to file the paperwork, but all tax liabilities are must be paid in full by April 15.  Late payments will be assessed interest and penalties.

Tax laws change every year.  New credits, increases or decreases in allowable limits and other modifications may affect your taxes.  Link to our page of tax news you can use , where we summarize some of the rules that affect most taxpayers.