Professional Tax Review Report
Tax Year 2006

Thank you for giving us the opportunity to review your 2006 tax return. This report contains the following information:
 
Overall assessment of your return
Answers to your specific questions and concerns
What your tax return reveals to the IRS
Inconsistencies or problems
Audit targets
Items you should review
Tax reduction strategies
What is an audit?
Conclusions


At least two tax professionals have reviewed your return and developed your specific "Profile" based on your entries. Before you file this return, please go through the statements in the section entitled, "What Your Tax Return Reveals to the IRS," and verify that the profile we have developed from your information corresponds with the facts of your unique situation.
 
Overall Assessment of Your Return
We have found one or more potential issues in your return.   Since we cannot review your source documents, we are unable to determine for sure if your return needs to be adjusted.   By reading through this report in its entirety and addressing all issues discussed, we are confident that you will have the information necessary to make such a determination.
 
Answers to Your Specific Questions and Concerns
You submitted to us:
  1. In box 14 of one of the W-2s it has IRC 414 (H) 2050.96. Do we need to put this in?
  2. It also has NJ UI 103.28. Do we also need to put this in?
  3. Plus we have another W-2 that has nothing in any of the boxes except that in Box 12 it has J 3,266.66. Do we have to claim that?
 
Our response or helpful suggestions:
  1. Please enter both the description and the dollar amount exactly as they appear on the W-2. This is a contribution to a pension plan and it has been accounted for in your taxable income on the W-2.
  2. You have entered this correctly in TurboTax.
  3. Yes, you have entered it correctly in TurboTax. Code J is non-taxable sick pay.   You need not do anything else.
 
What Your Tax Return Reveals to the IRS

Your tax return contains a large amount of information about you.   When the IRS processes your tax return, your taxpayer profile is developed from the information contained in the return.   The IRS uses this profile to determine whether to audit your return, make mathematical corrections, or accept your return as filed.

We have analyzed your return and have found the following profile. If any of the following statements are not true, you may need to make corrections to your tax return. To review information regarding statements that appear to be false or need clarification, please go to the following website address and enter your Order Number and Password: http://reportdetails.taxaudit.com.
Personal Information:
T F  
You were legally married, or in a common-law marriage, as of the last day of the year, and are filing as Married Filing Jointly on the income of both you and your spouse.
     
You had a dependent child who lived with you.
     

The occupation that the majority of your last year's income came from was Teacher.
 
Your Income :
T F  
Your major source of income came from wages you earned as an employee.   You also had income from business activities and from investments.
     
You contributed to a 403(b) salary reduction retirement program.   You contributed $1,700.00, which is less than the $13,000 total annual amount allowed before you reach age 50.
     
You received sick pay not includable as income.
     
You and your spouse had investment income and income from the sale of investments during the year.
     
You and your spouse did not have an interest in a foreign bank or investment accounts during the year.
     
You sold your main home at a profit. You qualified for and elected to exclude $187,824 of the total gain of $187,837 from your taxable income.
     
 
Your Business Activities:
T F  

Your spouse operated a business described as Sales which was started in a prior tax year. This business used the cash method of accounting.
     
Your spouse materially participated in the operation of the Sales business activity. Your spouse's entire investment in this business activity was not identified as to risk.
     
Your spouse used a portion of your home exclusively and regularly for your Sales business. Your spouse claimed a deduction for this business use of your home.
Your Deductions:
T F  

You were a qualified educator and paid expenses related to that profession. You worked 900 hours or more in that profession during the school year.
     
You had allowable itemized deductions of $16,127 that exceeded the standard deduction of $9,700. The allowable itemized deductions were not limited by your income level.
     
You were allowed a full $3,100 exemption each for yourself, your spouse, and your dependent.
     
You own a personal residence and pay mortgage interest and real estate taxes.
     
In addition to charitable contributions paid by cash or check, you and/or your spouse have made noncash charitable contributions.
 
Other Items:
T F  

You had 1 child under the age of 17 that qualified you for a $1,000 reduction in your taxes due to the Child Tax Credit.

     
Your spouse reported income subject to self-employment tax. (This increased your tax by $432.)
     
You received a credit for contributions to an employer-sponsored retirement plan.

 
The above profile tells a story about you. The other categories in this report contain additional information and suggestions that should be carefully reviewed to ensure that you have properly prepared your return.
 
Inconsistencies or Problems
Any problems listed here are considered audit targets.
  1. Vehicle mileage for your business appears to be estimated.
  2. For the sale of your former home, the purchase price ($2,175) appears to be very low.
  3. The value of the land related to the home office for your business is not specified.
 
Audit Targets
Additional audit targets may have been noted in the Inconsistencies or Problems section above.
There are several reasons why a return might be selected for audit. Some entries found on a tax return are common audit targets. This does not mean that you will automatically be audited or excluded from audit because of these entries. Please carefully review the areas we have noted to minimize the possibility of having your return chosen for audit. The audit target areas or entries we feel should be reviewed are:
 

Mileage Entries Appear to be Estimates: Sales (Schedule C, Line 9)

  • The figures shown for total, commuting, or business mileage appear to be estimates.
  • In order to take a deduction for the business use of vehicles you need to have written records and the entries should be as accurate as possible.
  • Estimated figures can cause the IRS to question the validity of your vehicle use. Review your entries to ensure that the proper expense deduction will be shown on your return.
  To make changes in TurboTax:
               Select Tab : Federal Taxes
               Click Go button to the right of: Income
               Select the Edit button to the right of: Business Income .
               On the Business Summary screen: Select the business by clicking Edit .
               Continue to: Vehicle Summary screen, select the vehicle by clicking Edit .
               Continue to: Mileage screen to edit the mileage.
 
Personal Residence Sale with Prior Business Use (Schedule D)
  • Based on the information given, the personal residence you sold was used as a rental or a Business Use of Home deduction was taken on this property.
  • Even though the gain on the sale of a person's main residence may be excluded under Section 121 of the IRS Code, any depreciation taken on that home after May 6, 1997 is taxable income on Schedule D.
  • Review the entries for the sale and follow the instructions for the property that is used for a business purpose.

To make changes in TurboTax:
               Select Tab: Federal Taxes
               Click Go button to the right of: Income
               Select the Edit button to the right of: Business Income or Rentals and Royalties, whichever                applies.
               On the Business Summary or Rental and Royalty Summary screen: Select the business or                rental by clicking Edit.
               Continue to: Asset Summary screen to edit the sale of a depreciable asset.

 
Verify that the Totals for all Stock, Bond, and Fund Sales Match the Total Sale Prices Reported on all Forms 1099-B (Schedule D, Line 10)
  • You must report all of the sales shown on Form(s) 1099-B.
  • The best way to verify that all of the entries are included is to compute the total sales amount for Form 1099-B items shown on Schedules D and D-1 and compare to the total sales amounts shown on all Forms 1099-B.
  • The total of all actual sales is often greater than the amounts reported. This is due to the sale of personal items, stock options, etc. that are not reported on a Form 1099 but must be reported as income.

To make changes in TurboTax:
               Select Tab: Federal Taxes
               Click Go button to the right of: Income
               Select the Edit button to the right of: Interest, Dividends & Investments.
               Continue to: Your Investment Income
               Select the Edit button to the right of: Sales of Investments
               On the Investment Sales Summary screen: Review total proceeds and edit sales as                necessary.
 
Items You Should Review
Overlooked entries can cause problems. In some cases, missed deductions or adjustments could result in higher taxes than necessary . However, there are certain entries that must be present in order to make the tax return complete, even if they cause a higher tax than expected. The items we feel may have been missed are as follows:
 
Verify Bank Account Information (Form 1040, Line 72b, c and d)
  • Is the bank information shown on this return correct?
  • If the bank routing and account number information is not correct, or you have not indicated a choice of checking or savings account, your refund will be delayed and mailed to you instead of using direct deposit.
  To make changes in TurboTax:
                Select Tab : Federal Review
                Continue to: Want Direct Deposit and click Yes .
                On the Confirm Your Bank Information screen: Verify your information.
 
No Entry for Personal Property Taxes (Schedule A, Line 7)
  • Most states assess a personal property tax based on the value of cars, boats, and other personal property items.
  • If you use these items for personal use, you can deduct the property tax portion of the amounts you paid. In some cases, the personal property tax is included with other fees that are not deductible, such as license, registration, or weight fees. Examine your property tax or vehicle license forms to determine the portion that you can deduct.
To make changes in TurboTax:
                Select Tab : Federal Taxes
                Click Go button to the right of: Deductions .
                Select the Add or Edit button to the right of: Taxes.
                Continue to: Any Vehicle Registration Fees? or Enter Personal Property Tax You Paid                 screens to make entry.
 
Charitable Gift Documentation (Schedule A, Line 15 and 16)
  • For all donations, you need records to support your deductions. These records should include:
  • The organization that received your donation.
  • The cost or other basis of the items you donated, and how you determined the fair market value of the items (such as thrift store prices, Blue Book value of vehicles, etc.).
No changes necessary in TurboTax.
 
Contributions of $250 or more (Schedule A, Line 16)
  • Reminder: If you make a single contribution of $250 or more in goods to one organization, you need to obtain a statement from the organization that includes the amount of the donation and whether you received anything in return from the organization. You must get this statement before you submit your return. Do not send this statement to the IRS, but keep it with your records in case you need it for verification.
No changes necessary in TurboTax.
 
No Utilities for Business Use of Home (Form 8829, Line 19)
  • Utility expenses that relate directly to the business portion of your home are considered a direct business expense. You should enter the utility expenses for your entire home, and TurboTax will calculate the portion that is a business expense.

To make changes in TurboTax:
                Select Tab : Federal Taxes
                Click Go button to the right of: Income
                Select the Edit button to the right of: Business Income .
                On the Business Summary screen: Select the business by clicking Edit .
                Continue to: Home Office Summary screen, select the home office by clicking Edit .
                Continue to: Expenses for your Entire Home screen to make the entries for Utilities.

 
Low or No Land Value Shown (Form 8829, Line 36)
  • Land is not a depreciable asset and must be excluded from the basis of a property tax statement to determine the percent for land versus structure. Then apply that percentage to the basis price to determine the land value.
To make changes in TurboTax:
                Select Tab : Federal Taxes
                Click Go button to the right of: Income
                Select the Edit button to the right of: Business Income .
                On the Business Summary screen: Select the business by clicking Edit .
                Continue to: Home Office Summary screen, select the home office by clicking Edit .
 
Verify the Amount Shown as Your Retirement Contribution (Form 8880, Lines 1 and 2 )
  • Contributions to IRAs, elective deferrals to qualified plans, and voluntary employee contributions should be verified.
  • Review the entries for your retirement plans for the current year to ensure that you entered the correct amounts.
  • Your contribution total is limited to $2,000 on line 6 of this form, for the purpose of credit calculation.
  • The credit ranges from 10% to 50% of the $2,000 limitation.
To make changes in TurboTax:
                Select Tab : Federal Taxes
                Click Go button to the right of: Taxes and Credits.
                Select the Edit button to the right of: Other Credits.
                Continue to: Retirement Savings Credit screens and review your entries.
 
 
Tax Reduction Strategies
There are options for handling certain types of income and deductions that could help you reduce your taxes in future years. Unfortunately, there are very few options available for this tax return since the 2006 calendar year has already passed. Here are some ideas that you may want to consider as tax reduction strategies:
 
You were Eligible to Make a Larger 403b Salary Reduction Plan Contribution (Form 1040, Line 7)
  • Your entries indicate that you made $1,700.00 in 403b Salary Reduction Plan contributions through your employment. This was less than the $13,000 that you were eligible to contribute. (An increased limit may apply if you have at least 15 years of service - check with your employer.)
  • If you participate in a 403b Salary Reduction Plan in 2007 , you may want to consider increasing your contributions. These contributions will not be taxable in 2007 .
No changes necessary in TurboTax.
 
Review Withholding for Future Refund Adjustments (Form 1040, Line 72a)
 
  • If the refund shown is not the desired amount, you may be able to change next year's refund by adjusting the withholding tax deducted by your employer.
  • A new W-4 Form can be submitted to your employer. If you increase the number of exemptions claimed on this form, the amount of withholding will decrease.
  • In order to properly calculate the number of exemptions to claim on your Form W-4, consider any tax changes that will occur during the next year.
  • By evaluating your possible tax liability throughout the year, you can adjust your withholding amounts to avoid large overpayments of tax.
No change necessary in TurboTax
 
 
What Is An Audit?
There are now four types of audits that can affect your return::
1.

The “Mathematical Correction Audit” usually occurs at the time your tax return is filed. The issues addressed include mismatches between names and social security numbers, earned income credit qualifications, filing status, estimated tax and withholding tax errors, assessments of estimated tax and late filing penalties and interest, and the IRS making an assumption that mathematical errors exist in the return. These errors are usually data entry errors or data that was not verified back to the original source documents. If you used TurboTax, the calculations are guaranteed accurate by Intuit. In the event of this type of audit, the IRS sends you a bill for the balance due. The IRS assumes that their calculation is correct and will commence collection action if not paid promptly. Many of these bills are not correct and must be handled immediately and in the proper manner. This is the most common type of audit and the most difficult to fix.

   
2.

The “ Information Return Matching Audit” usually occurs from 9 to 18 months after your tax return is filed. This audit involves the matching of all 1099 forms, W-2 forms, and K-1 forms to your tax return. If the IRS believes that you did not report all of your income based on their computations, they will send you a notice itemizing why you need to pay more. They will not send you a notice if they believe that you have overpaid your tax. The IRS believes that their information is correct and you must prove to the IRS that their records are not correct in order to reverse the adjustment. This is the second most common type of audit and must be handled promptly and properly.

   
3. The “Office Audit and the Field Audit” are the face-to-face audits that have received the most publicity in the last several years. Congressional pressures on the IRS and an increase in funding have resulted in dramatic increases in the audit rate. This type of audit starts with a telephone call or letter from the IRS. The intent of the telephone call, which is used exclusively in many areas, is to get the taxpayer to volunteer information long before the face-to-face meeting. This information would never be revealed by our qualified representative. During the audit appointment, the IRS will examine items on the tax return that could result in a larger tax bill. Based on the results of the audit, other tax years may also be examined.
   
4.

The “Taxpayer Compliance Measurement Program Audit” now known as the “National Research Program” is the least common type of audit, but certainly the most intrusive by its very nature. Selections for this type of audit are random and the likelihood of selection varies by where you live. Every entry on the tax return is examined. For instance, if a child was claimed as a dependent, you will need to provide the birth certificate and proof that the child is actually living with you. The IRS is currently performing these types of audits for the first time since 1984.

 

Avoiding an IRS audit is not an exact science, but a number of techniques can successfully reduce the likelihood of an audit. Make sure that income and deduction items that have been reported to the Internal Revenue Service are properly included on your return. Keep in mind that it is quite common for income to be reported to the IRS on forms never provided to the taxpayer. You are required to include all of your income whether reported to the IRS or not. Also make sure that all descriptions of deductions are clear, concise and understandable. Too much information can sometimes be more damaging than too little. Long explanations are never a good idea. Most importantly, print a copy of the tax return and carefully review all of the information before filing the return.

 
A qualified representative is the best way to reduce the financial and emotional impact of an audit. This is true for each of the four types of audits. If you are interested in Audit Defense, visit http://intuit.taxaudit.com for more information or purchase it directly from within TurboTax.
 
Conclusion
This concludes the Professional Tax Review for this tax return. During the return review process, TaxResources did not have the ability to review your original source documents in order to ensure that all items of income, deductions, tax, or credits were included on the return that was submitted for review. We did not check the return for mathematical accuracy since it is assumed that calculations provided in the TurboTax program are accurate, and that no entries have been made to override the results computed by the TurboTax program.
 
Sincerely,
TaxResources, Inc.

If you would like to see a copy of the tax return that you submitted to TaxResources, please go to http://proreviewgetforms.taxaudit.com and enter your order number and password.

If you need further clarification or help regarding your Professional Tax Review report, you can contact TaxResources via e-mail by visiting http://returnreview.taxaudit.com.

If you would like additional assistance beyond the scope of this review, you may wish to consider purchasing it from TaxResources. The cost of this service is $65, and provides up to two (2) hours of telephone and analysis services for this federal tax return. If you would like to sign up for this additional service, please call 1-800-829-9695 or visit http://returnreview.taxaudit.com.

 

Disclosure Per IRS Regulations

The following information is being provided to the taxpayer as required by the Internal Revenue Service and following the guidelines for best practices for tax advisors per Circular 230 section 10.33 (a) (1-4) and 10.35 (b)(2), (8), and (10):

  1. Tax advisors will provide clients with the highest quality service concerning Federal tax issues by adhering to best practices in providing advice and in assisting in the preparation of a submission to the Internal Revenue Service.
  2. If there is any information contained in this report that is not clearly understood by the client, we strongly suggest that you follow up those facets with our Return Review Department as outlined in this report.
  3. We advise all clients to use their records to avoid accuracy related errors, insure the reasonableness of any and all assumptions related to the application of the tax codes, and to better prepare an accurate and correct return.
  4. We act fairly and with integrity as we recommend all clients do when dealing with the Internal Revenue Service.
  5. As by definition, this report may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This written statement(s), along with subsequent correspondence, is not intended or written by this practitioner to be used, and cannot be used by the taxpayer, for the purpose of avoiding penalties that maybe imposed on the taxpayer by the Internal Revenue Service.
  6. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with statutes and Congressional intent.