2009 1040 tax checklist

Updated for 2009 tax return filing

Summary of the Worker, Homeownership, and Business Assistance Act of 2009

If your income tax return is looking more impressive, then shouldn't your tax professional be more impressive too?

Who prepares your income tax returns? Someone who took a brief training course? Or do you trust tax software to understand and correctly interpret every nuance of your finances? Maybe it's time you considered using a CPA, a dedicated professional who really knows the business of taxes and finances - all year around, not just January to April.

The IRS tax code is a maze of complexity. To make matters worse, there are areas of the state tax code that do not follow the IRS code in handling certain income and deduction items. Plus, each state's tax rules differ making it especially problematic if you lived in multiple states during the year.

We maintain a library of up to date tax literature and subscribe to extensive tax research resources. We personally train, oversee and review the tax returns prepared by our staff to insure accuracy. Should you ever incur a penalty as a result of our error, of course we will pay it for you. Furthermore, should your return be selected for audit, we will represent you in explaining any positions taken on your return.

We have prepared the following checklist to assist you in gathering the appropriate documentation to prepare your return. Please note this list is not all inclusive, but covers the most common situations. Complete tax organizers are available by contacting our office.

TAXES IN GENERAL

• 2009 amounts for: personal exemption - $3,650.
  
• Standard mileage rate: Business - 55 cents/mile, medical & moving - 24 cents/mile, charitable - 14 cents/mile. (subject to periodic change)
  
• Phase-out of personal exemptions starts with AGI of for married filing jointly - $250,000, married filing seperately $125,000 single $166,800, Head of Household $208,500
  
• Phase-out of itemized deductions starts with AGI levels at: Single - $159,950, married filing jointly - $ 159,950, married filing seperately - $83,400 head of household - $159,950
  
• Child Tax Credit - to remain at $1,000 per child.
  
• Maximum wage base for Social Security Tax $106,800 for 2009, and according to the Social Secrutiy Administration there is no scheduled increase for years 2010 and 2011 at this time. For Medicare, there continues to be no wage cap, all wages are taxed for Medicare.
  
• Maximum contribution 2009 limits for: 401(k) $16,500 plus $5,500 for additional catch-up if over age 50, IRA's $5,000 plus $1,000 additional catch-up if over age 50. SIMPLE $11,500 plus $2,500 additional catch-up if over age 50 for 2009
  
• Assemble all tax documents you receive such as W-2's, 1099's, K-1's, brokerage statements, mortgage interest, real estate taxes, contributions, etc. In general, you will receive all of these documents by the end of January except for K-1's which can take at least two months from the end of year. However, rather than holding up the start of preparing your return, it is generally advisable to get all your other tax documents to the tax preparer and then just advise them that you are still waiting on a K-1. That way, you return will be ready to finalize as soon as the K-1(s) are received.
  
• Did your marital status change during the year? This will affect which tax forms you file. Also, if you are a single parent supporting a child, you may be able to file as Head of Household.
  
• Did the number of dependents that you claim change during the year? Don't forget to make sure you have the correct Social Security for the dependent on the form. If IRS cannot match the number, the dependent deduction will be disallowed until you provide correct information.
  
• Did you move during the year? If so, a change of address form should be filed with your return. Also, if you lived in multiple states, or lived in one state during the year and worked in another, this will determine what state tax forms need to be filed and whether they will be as a part year resident or a non resident.
  
• Did you receive any notices from IRS or the state regarding a change to your prior year's tax return? If so, it could impact this year's tax return in terms of tax payment deductions, refunds to be included in income or adjustments to your estimated tax payments. You should keep any such correspondence from IRS or the state with your year end tax documents to be considered for possible impact on your current year tax return.
  
• Rather than just just throw all your receipts in a "shoebox" and give it to your accountant to sort out, try to summarize things on a sheet of paper or spreadsheet and provide totals of each category. There are two benefits: (1) Your accountant will charge you higher fees if they have to take the time to sift and sort through all the documentation and summarize it first before preparing the return. (2) There is a greater likelihood that documentation might be misinterpreted. Remember, what may be familiar to you, may not be so self-evident to someone not familiar with your situation meaning a higher possibility of an erroneous conclusion or amount.

INCOME REPORTABLE ON YOUR TAX RETURN

• Check all W-2's you received from employers to see if the amounts reported look correct. Sometimes there are errors on these, most often when issued by smaller companies without an outside payroll service. Common errors are getting the state or local taxable wages wrong or not listing on the W-2 some tax deductions such as PA unemployment tax. Make sure you get a W-2 from every employer for whom you worked during the year.
  
• Did you receive any interest, dividends or other investment income during the year? These will generally be reported to you on forms 1099-INT, 1099-DIV or 1099-B. Also, various interest on municipal and government bonds is not taxable for federal and/or state tax purposes.
  
• Did you receive any state or local tax refunds during the year? They may be reportable as income if you took an expense deduction for them in the preceding year.
  
• Do you have any children with investment income? It may be taxable at the federal and state level. Also applicable is the "kiddie tax" for children under the age of 19 or 24 if full time students with unearned income in excess of $1,900 which gets taxed at the parents' highest rate.The Small Business and Work Opportunity Tax Act of 2007 brought in this change. Note that wages you pay to a child who you employ in your business are not subject to the kiddie tax.
  
• Did you start a new business during the year? If so you will need complete revenue, expense and payroll records for the business activity. Note the activity is only includable on Schedule C if you are a sole proprietorship or single member LLC. Otherwise, if you are incorporated or a partner or member of a multiple person owned business, separate federal and state tax returns will be required depending on what type of business entity you are.
  
• If you have a business and incurred capital related expenditures, some or all of these may qualify under the Section 179 expensing option which was increased to $250,000 for 2009 - phaseouts apply.These limits were set to return to "normal" for 2009, but were extended until 12/31/2009 under the American Recovery and Reinvestment Act - so you may wish to take advantage of them now.
  
• Did you sell any stocks, mutual funds, bonds or other investments during the year? If so these transactions and the related capital gains and losses (short term or long term)  must be reported on your return. In recent years, the brokerages have greatly improved their reporting of cost basis of investments. However, that is not always the case when there has been a transfer of investments between institutions and all the purchase history does not transfer to the new institution. Therefore, the burden is on the taxpayer to keep records of cost, number of shares and dates of purchase so that the proper gain or loss can be determined at the time of sale. The maximum tax rate on dividends paid by corporations to individuals and on individuals’ capital gains was reduced to 15% in 2003 through 2010. For taxpayers in the 10% and 15% ordinary income tax rate brackets, the rate on dividends and capital gains is reduced to 5% in 2003 through 2007, and to zero in 2008, 2009 and 2010. The new rates apply to capital gains realized on or after May 6, 2003, and to dividends received in 2003 and after. Note, for other assets such as real estate, there are special capital gain rates. For example, gains on real estate up to extent of depreciation taken are taxes at 25%.
  
• Did you receive any distributions from a retirement plan during the year? Some or all of these may be taxable. These are reported to you on a Form 1099-R. Pay particular attention to the amounts shown as the "taxable" portion of the distribution as well as the numerical distribution codes on the form to make sure they correctly state the type of distribution this was (note the legend for these codes is most usually on the back of the form).
  
• Do you own any rental property? Did you buy or sell any properties during the year? A careful breakdown of the acquisition costs is necessary at the time of purchase in order to calculate the appropriate depreciable basis of the building (which does not include land) Also, for a sale of property, there are complex issues related to the gain or loss on sale, depreciation recapture, allocation of settlement costs and so on.
  
• Did you receive any unemployment compensation during the year? Yes, it is taxable on your federal tax return.
  
• Did you receive any social security benefits? A portion of your benefits may be taxable based on a schedule that needs to be completed to determine the taxable portion.
  
• Gambling income is also taxable. Hint: make sure you keep records of your gambling costs since they are deductible as an itemized expense - up to the amount of taxable winnings.

TAX DEDUCTIONS FOR ADJUSTED GROSS INCOME

• Did you incur any moving expenses during the year? They may be deductible but it depends on what they are for. Generally, the transportation of household goods, travel and lodging costs en route qualify. Also, there is a "distance test" which must be met in that the new job must be at least 50 miles farther from the old house that the old job was from that house. Also, if your employer reimbursed any of the expense, this has to be backed out of the expense deduction.
  
• Did you participate in any retirement plan? This could affect your taxable income and your ability to contribute to an IRA. Before you put money into an IRA you need to know whether your adjusted gross income will be under the limit. If not, you have to pay an excise tax on the over-funded IRA balance year end until such time as you withdraw the excess amount.
  
• If you are self employed, consider setting up a SEP retirement plan. These can allow you to contribute far more into a retirement plan than just using an IRA. For 2009, the maximum contribution is 25% of compensation, up to $49,000. Plus, you can even wait to do this up to the due date of your return which gives you a chance to see what the maximum amount you can contribute into the plan would be for the current year. Note that although the contribution will save you federal tax, it does not reduce your income for the computation of self-employment tax (ie social security and medicare), state tax (in PA) or local tax.
  
• If you are self employed, did you pay for your own health insurance? If so, your premiums may be deductible directly from income rather than as an itemized medical expense subject to the 7.5% AGI floor.
  
• Did you pay or receive any alimony payments during the year? These are deductible by the payor and includable as income on the recipient's return. However, child support payments are neither deductible or includable as income.
  
• Did you pay any interest on a student loan? It may be tax deductible up to $2,500 - AGI phaseouts apply at $60,000 for single, $120,000 for married.

ITEMIZED TAX DEDUCTIONS

• Did you have any un-reimbursed medical expenses during the year or use your car to travel for medical care?
  
• Did you buy or sell a personal residence during the year? A careful review of the settlement sheets is necessary to determine what items of real estate tax adjustments get reported on your return - either as expenses or credits. Also, although a capital gain on the sale of a residence (up to $500,000 for MFJ, or $250,000 for single) can generally be excluded, that is not entirely the case if the residence was not used cumulatively two out of the previous five years, or if you claimed depreciation on a home office.
  
• Did you pay real estate taxes and mortgage interest? These are deductible if you itemize.
  

• The American Recovery and Reinvestment Act permits taxpayers to take a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. The deduction is available on new vehicles purchased from Feb. 17, 2009, through Dec. 31, 2009. In states that don't have a sales tax, the law provides a deduction for other taxes or fees paid. This deduction is available whether or not a taxpayer itemizes deductions on Schedule A.The deduction is limited to the taxes and fees paid on up to $49,500 of the purchase price of an eligible vehicle. The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

• New for 2008, mortgage insurance premiums are still deductible, but phase out starts when AGI exceeds $100,000.
  
• Did you refinance your residence during the year? If you paid points, generally, these are amortizable and NOT deductible all in the year of refinance.
  
• Did you make any cash or non-cash contributions during the year? Do you have written evidence to substantiate charitable contributions of $250 or more? Remember, always ask for a receipt when you take household contributions for deduction - this is often overlooked by taxpayers. New tax laws have changed the rules regarding donations to charity. Effective 2007, you must have a receipt from the charity and a bank statement record showing that the payments were made.
  
• Do you use your car to provide volunteer work for a qualified organization? Your mileage may be deductible
  
• Did you sustain any casualty or theft losses during the year? You may be able to claim some deduction for this in excess of 10% of AGI.
  
• As an employee, did you incur any un-reimbursed expenses related to your job such as auto expenses, supplies etc. Unlike the federal return, there is no 2% of AGI floor you must exceed for these deductions on your state and local return so even if there is little or no benefit on the federal return, you still may qualify for some expense on the state and local returns.
  
• Did you incur any home office related expenses? If so, they may be tax deductible but, it depends on the circumstance. It must be required for your employer's convenience, not yours. Note, however, that if your home office is associated with self employment, those expenses are deducted against the sole proprietorship income rather than as a itemized deduction. This provides a far greater benefit since there is no minimum floor. Plus, the deduction also reduces income for self-employment, state and local taxes as well. Note, however, when you sell the house, depreciation must be recaptured as taxable income.
  
• Did you incur any expenses related to seeking a new job during the year?
  
• Tax preparation fees as well as investment advisory fees are also deductible as a miscellaneous itemized deduction.

TAX CREDITS

• Child tax credit for children under age 17 is $1,000.
  
• The adoption credit up to $11,650, phaseouts based on AGI apply.
  
• Did you incur any education expenses for you, your spouse or dependent children?
   

  American Opportunities Tax Credit - This credit equals 100% of the first $2000 of qualifying higher education expenses and 25% of the next $2,000 of expenses, up to a maximum credit of $2,500 for each eligible student in your family. The credit is available for any of a student's first four years of college. Tuition payments and certain related expenses, including books and other required course materials, are eligible for the credit. However, there are AGI phase-out limits.

  Lifetime Learning Credit -You may qualify for this credit if you don't meet the requirements for the American Opportunties Tax Credit. It's available for each year of post-secondary education, including graduate school and eligible job training. The maximum credit is $2,000 (20% of up to $10,000 of qualified tuition and related expenses) per taxpayer return. Again, it to is subject to certain AGI phase-out ranges. You may not claim both education credit sof the same student's expenses, and neither credit is available to a married taxpayer filing seperately.

• Did you pay any child or dependent care expenses so you could work? You may be eligible for a tax credit.
  
• Did you have any foreign income or pay any foreign taxes during the year. Don't forget to claim a credit for any foreign taxes paid against foreign source income.
  
• Did you know there are credits for certain energy efficiency expenditures.
  
• Domestic Production Activities Credit

TAX PAYMENTS

• Did you make any estimated tax payments during the year? If so, don't forget to report them on your return. The requirement to make estimated payments is based upon your prior year tax liability less any withholding. The shortfall as calculated under the "safe harbor" method is what should be paid as estimated taxes.
  
• Did you pay any one household employee wages of $1,500 or more? If so, you are required to withhold taxes and report this information on your return

ALTERNATIVE MINIMUM TAX

The purpose of AMT is to ensure that paying some minimum level of taxes cannot be circumvented as a result of claiming excessive deductions or other "loopholes". Some of the things which can put you at risk of having an AMT liability include:

• Claiming large unreimbursed employee business expenses
• Exercising incentive stock option gains
• Living in a state with high taxes
• Claiming large miscellaneous deductions
• Claiming a large number of personal exemptions
• High medical expenses

This tax preparation checklist has been assembled for some of the more common transactions that affect the preparation of an accurate tax return. This list is by no means intended to be all inclusive. Each taxpayer's situation is different. Therefore, you should consult with your tax professional for specific information related to the preparation of your return.

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