5 Tax To-Do's in February

Post by YiLin Zhu

Written by Eva Rosenberg, February 12, 2009

Time to leg down figures for stock basis, work expenses, child-care credit.

1. Investment 1099s are coming: But wait! Don't file your return yet. You still don't have the correct 1099-Bs for your investments. Your brokerage or investment house was given additional time to send them out you. Their mailing deadline is February 17. Have you been stung in the past by having filed your tax return based on the first set of 1099s you received, only to get the corrected set later? This should eliminate the need to wait for the corrections.

2. Research basis: With the collapse of Wall Street, your brokerage may have changed hands, or you may have lost confidence and moved your account somewhere else. You didn't actually have to sell your securities to move them to a new brokerage. So what's the problem?
Your new broker doesn't have the purchase information of the original stocks. Do you have it? Can you still get into your old account online to get the information? You're going to need the basis on all the securities that were transferred.

Naturally, for your 2008 tax return, you only need the basis for the securities you sold in 2008. But while you're getting that information, you may as well get the basis for everything that was transferred and enter it into your new account.Check with your brokerage, or accounting software. You may already have access to it for free.
Remember, the basis won't necessarily be the cost of the security. It may have split, or reverse split. You may have reinvested dividends. Did you keep track of those costs for the additional shares?

Take the time to do the research. Then, next year when you get your 1099-B, it will show the correct basis of the securities you sold. If you can't readily find the basis you need, perhaps Wolters Kluwer's GainsKeeper tool can help. Richard Preece, group product manager at TurboTax in San Diego waxed eloquent about being able to enter a stock name or ticker and the purchase date -- and voila, you get the correct basis per share, net of all splits, reorganizations, etc. GainsKeeper is included in TurboTax's Premier product.

3. Hidden expenses: Scour your final pay stubs for useful information. Remember to include all the jobs and retirement income you had last year. In the course of preparing for an audit last month, TaxMama was appalled at what she found on a client's pay stub. There were deductions for dental insurance, and for his and her health insurance. Total? Over $20,000 in medical expenses that had not been included on the tax return.

Remember to look for union dues, payments for tools, equipment or other supplies. You may be able to use them as employee business expenses.If you're working with a tax professional, remember to let him or her know about these expenses that don't appear in your checkbook and credit card statements.

4. Reimbursed expenses at work: Are you paying taxes on your reimbursements? Reimbursed expenses have become contentious in the last couple of years. Employees are finding some reimbursements added to taxable wages - with all the Social Security and Medicare deductions applied.

Typically, your company should only be adding taxable reimbursements to your wages when they give you money without insisting that you account for the use of it. In other words, you get a $350 per month expense account to use as you see fit. You don't have to turn in receipts to your employer. IRS considers this to be disguised wages.

When your company adds your reimbursements to your income, be sure to deduct them from your tax return. Use Form 2106 - Employee Business Expenses. See the form on the IRS site.
Don't enter the reimbursements you've received on line 7, since you've already paid tax on those reimbursements. Use the Form 2106 instructions for guidance.

Incidentally, you wouldn't need to go through this extra work if your company had an accountable reimbursement plan. When all your reimbursements are on the basis of expense reports you submit to your company, you don't get taxed on the reimbursements. The numbers never appear in wages, W-2s, or your tax return. Perhaps you can convince your employer to implement an accountable plan? See this IRS page for more information.

5. Claiming the child and dependent care credit: You'll need the name, address and employer identification number of the child or dependent care provider to get the child and dependent care credit, on Form 2441. If you are missing any of those components, IRS will reject the credit. Your state will probably reject it, too. California insists on getting the provider's phone number, too.

The child and dependent care credit is limited to expenses up to $3,000 per person (up to $6,000 for two people). Your expenses are much higher than that, right? See if any of the expenses qualify as medical expenses. When the costs are for the benefit of someone with a disability, you may be able to use the excess over the child and dependent care credit limits on Schedule A.

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