Obviously you should start with all copies of all your W-2s, 1099s, 1098s and K-1s from all sources. I tell my clients to make and keep a photocopy of all W-2s. You may need this information for college financial aid or mortgage applications, or for a variety of other reasons, and this way you won’t have to bother your preparer for the information.
Also obvious, I ask for a detailed listing of itemized deductions, rental income and expenses, self-employment income and expenses, and child-care expenses. I also ask for the Social Security or Employer Identification Number of all child care providers. “Sam” will disallow the Credit for Child and Dependent Care Expenses if you do not provide an identifying number.
I also ask for all year-end statements, reports, booklets and other literature received from brokerage accounts and mutual funds. The statements may contain details on cost basis, purchases, dividend reinvestment, margin interest, management fees, etc., and booklets often include important information on income from US government obligations that will be useful in preparing the state income tax return.
If available, I like to see the final pay-stub for the year for each employer. I use this to reconcile the federal wages to the state wages if there is a difference. While Section 125 health insurance premiums or medical flexible spending accounts are considered “pre-tax” for federal income taxes, they are not pre-tax for New Jersey state income tax purposes. However, these items may be deductible on the NJ-1040 as medical expenses.
If I do not already have the information on file, I need the dates of birth for the taxpayer and spouse as well as for all dependent children.
Taxpayers have always been allowed an extra deduction for being age 65 or older (or legally blind). Originally it was an additional personal exemption, so everyone received a tax benefit for being a “senior citizen” or blind. Since 1986 seniors and the blind get an increased standard deduction, so qualifying taxpayers with excessive itemized deductions get no benefit.
Being a gentleman, my mentor Jim Gill tried to use tact in soliciting a client’s age. I recall one time when he told a long-time client, “Now make sure to let me know when you reach age 65.” The client tittered, both flattered and embarrassed, and told Jim that she was 69 years old! We obviously promptly prepared amended returns for all open years. And the next day Jim hung a sign prominently in the waiting room that read “Please Let Us Know When You Turn Age 65”.
I have always wondered why the blind were the only class of disabled individuals to get the special tax treatment. I suspect it was something like a Congressman whose vote was needed or who had accumulated a favor had a blind wife.
There are other reasons to know the age of a client. For example, ages 55 and 59 are important ages in determining whether the distribution from a pension plan is “premature”, and New Jersey offers a “retirement income exclusion” for certain taxpayers age 62 or older.
The age of dependent children is important to know because it affects various various tax treatments, such as the Child Tax Credit, the Credit for Child and Dependent Care Expenses, the “kiddie tax”, and the dependency exemption.
Special information and documentation is needed for special tax situations. Come back tomorrow for more details in Part Two.