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Back To Life, Back To Reality: Part IV

October 6, 2006

 *This week marks the end of our “back to school” finance tips.   We have covered money tips for kids, college students, and a few for the grown-and-sexy crowd.   Here are three more tips to get you “Back in Stride Again,” (Frankie Beverly and Maze, 1985).  

3.   “Ring the Alarm,” (Beyonce, 2006)

      Was this a REALLY good year for you?   Did you get a significant raise or windfall of cash?   Congratulations!   But if Nas was giving you this shout-out: “Owe me back like you owe your taxes” (Nas, featuring Ginuwine, “You Owe Me,” 1999), you’ve got work to do.   There is no reason to have bad credit or owe back taxes when you are making good money.   Get in the habit of filing tax returns on time and making tax payments.   There’s no reason to let old habits steal your new wealth.   Tax planning is one of your weapons to avoid this.

      Can’t afford to pay your back taxes all at once?   The same way many people pay their “Bills, Bills, Bills,” (Destiny’s Child, 1999), you can pay your tax liability on a payment plan, too.   Be ready to provide financial data to prove that you can’t pay the whole amount in one lump sum, and this is why you need the payment plan.   You will need to complete Form 9465, Installment Agreement Request.  

      If you owe less than $25,000, the process for getting an installment plan is pretty simple. You can either, call the IRS at the number listed on your latest tax bill or notice. You will need to provide the notice number, and your social security number. You can also go to the IRS website and fill out an on-line Form 9465. This form must then be printed out and mailed, or faxed, to the IRS. If you owe more than $25,000, you may still qualify for an installment plan, but you must also complete Form 433-F, Collection Information Statement.

4.  “Let’s Get Ready,” (Mystikal, 2000)

      When it comes to your 2006 taxes, NOW is the time to see where you stand.   April 15 th might be the official “tax day,” but in order to stay on top of things, you need to prepare all year long.     Prepare a “pro-forma” tax return.   Here’s how:  

· 2005 Tax Return – Look at your previous tax returns ( i.e., the previous 2 years) to help you gather the same type of information to calculate your 2006 income and deductions.

· 2006 Pay Stubs –   Gather your most current pay stubs to see how much you will make for the year, and how much you have paid in federal and state taxes

· Side Business or Real Estate Income and Losses –    Include any income or losses you anticipate from your business or real estate holdings.

· Expenses, Expenses, Expenses – Make sure to track all medical expenses paid; including (but not limited to): Insurance premiums, Co-pays, prescription medicine, medical devices, eye exams, glasses/contact lenses, mileage, office visits, and hospital/clinic expenses.   Don’t forget interest expenses related to your mortgage, and property taxes for your home and car.

· Charitable Contributions – Gather your tithes or charitable contribution statements. Always keep Salvation Army and/or Goodwill contribution receipts. If possible, take pictures of items donated; especially if they are high retail and in superior condition.

      Enter this information, either on your favorite tax preparation software, or get your tax preparer to do this for you.   The result will allow you to see if you need to put it into high gear and come up with a plan of action; like starting that nonprofit that you have been dreaming of.  

5. “Call On Me,” (Janet & Nelly, 2006)

      Finally, hire a professional! If you don’t have a tax advisor (someone doing more than just preparing your tax return), now is the time to get one.  Take some time out to interview tax advisors who can do more than provide the basics.   Be sure to look at:

· Billing Rates – Most tax advisors charge by the hour, schedule, or a standard rate.   Whatever the case, they should clearly explain this to you upfront. Be wary of a tax advisor who can’t simply give you a good estimate of his/her total fees, or has a fee structure based on a percentage of your tax refund amount.

· Pick a Professional (e.g., CPA, Attorney or Enrolled Agent) – Your tax return should be prepared by a professional; such as a CPA, Attorney or Enrolled Agent. These individuals were required to go through significant training and rigorous qualification tests to gain entrance into their profession (not to mention the hours and hours of yearly continuing education they must obtain). You wouldn’t take your sick child to the neighborhood “doc” –  a person who, while called a “doc” or “doctor,” but has never even seen a medical school. Why would you trust your tax return, with all of your financial information, to someone who took a two-day training class?

· Explanation of your completed return – Although you might “just want to know how large your tax refund is,” make sure you look for a tax advisor who will go over the return with you line-by-line, if necessary. This process normally does not take long, and you need to understand how the tax return flows and verify that the information is accurate. Even though the tax advisor normally signs off on the return, YOU are ultimately responsible for the accuracy and completeness.

· Sophisticated Tax Software – In this internet age, be wary of a tax advisor who doesn’t use sophisticated tax software programs to prepare your tax return. Keep in mind, silly mathematical errors are one of the top mistakes made by taxpayers that can often cause your tax return to be audited.

· Enthusiasm and Presentation – Does the tax advisor appear to have a genuine interest in doing taxes?   Enthusiasm about his profession and his job will almost always translate into giving you good service.
Shannon King Nash is the author of the award-winning book entitled, “For the Love of Money: The 411 to Taking Control of Your Taxes and Building Your Net Worth.”  She uses song lyrics and entertaining stories ripped from the headlines to teach readers how to manage their finances and taxes.  Shannon is a CPA, Tax Attorney, and regular expert commentator on KJLH FM Radio in Los Angeles, and has appeared on national television. Contact the Nash Management Group at 818-986-2665 or visit .

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