Wednesday, February 20, 2013

Finding the Right Help - Part 3

When you first speak with a prospective professional, he or she will need to understand how they can best help you. It will be to your benefit to be as forthcoming as possible. Try to articulate why you need their help. This can be as simple as responding to a notice from various taxing authorities to seeking a long term relationship for tax preparation and tax planning purposes.

In order to help you as much as possible regarding income tax preparation and planning, there are many questions we need to ask. Usually the vast majority of information needed can be obtained from prior year's tax returns, so be prepared to bring up to 5 years of returns to your first meeting, especially if you have passive or capital loss carryovers.

Another thing needed will be the tax basis of any assets you have sold during the year. This includes the cost basis of any securities sold, possibly the tax basis of securities inherited, from either the estate tax return, if any, (filed for the deceased) to a letter from the estate attorney listing the basis reported. Escrow settlement statements from real property purchased along with escrow settlement statements from property refinanced is also necessary.

If you have rental properties or other business assets, prior year depreciation schedules are necessary. If you happen to file state tax returns that don't recognize federal rules, such as California, there should be separate depreciation schedules for the state. This is very necessary as when these items are sold, your tax basis is likely to be higher for the state than it is for the federal return. You certainly don't want to pay more tax then necessary if a gain should result.

This may also be true if you have a different basis in your IRA in the state as compared to the federal return. There were years where some states did not allow a full deduction for your IRA contribution. For example, back in the 1980's. if you contributed the maximum allowed by the IRS of $2,000, CA only allowed you to deduct $1,500, resulting in a basis of $500 for each of the years in question. When you start withdrawing your IRA, it is quite likely some of the withdrawal will be tax free on your state return.

This list can go on and on and is not at all inclusive, but should give you a good idea of the items needed to do a proper job. If in doubt, ask!

Tomorrow I'll cover some of the questions you should be asking a prospective tax professional.

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