7 easy steps to an early tax refund

By Jeff Schnepper

If you want to get your 2009 taxes in early and get your refund quickly, here are Schnepper's Seven Strategies to getting those dollars in your pockets ASAP. Here's what you have to do:

1. Get started

The first step is the hardest. Stop thinking about it and get moving. Until you actually start your return, you'll never finish it. That's probably going to slow down your refund.

If you don't have all your numbers, just put your name and address on the form. It will get you in the mindset to move forward.

• Smart Taxes blog: Keep up with the latest tax news and changes

Your first step is to break the inertia. As my father used to say, a trip of a thousand miles begins with a traffic jam! Break that jam and get moving.

2. Accumulate the data

January is collection month. By the second week of February, you should have the numbers in hand. Make sure you've gotten W-2s and any statements from your brokers and banks. You'll receive 1099 forms for any interest, dividends and stock sales.

Your mortgage company will send you a Form 1098 for any interest and real-estate taxes paid. Get those statements together and review the numbers. They're not always right. They won't include any interest you paid at the very end of December because the creditor won't have received the money until 2010.

3. Put the numbers in IRS categories

Neither the Internal Revenue Service nor your CPA is going to add up those numbers for you. Well, maybe your CPA. Many years ago, a psychiatrist near Philadelphia paid me $150 an hour to open his mail because he couldn't be bothered.

You're going to want to have totals for the income and deduction categories the IRS provides. You'll need those final numbers if you're doing your own return, whether by hand or by computer. If you're having your return prepared, you'll want to give those numbers to your CPA to minimize his or her bill.

I suggest my clients use what I call the envelope system. You create an envelope for each of the IRS income/deduction categories. There'll be an envelope for medical expenses, charitable contributions, job expenses, interest paid, etc. Find all the receipts, all the checks, all the invoices and put each in the appropriate envelope.

If you live in a state without an income tax, don't forget to look for numbers for a possible deduction of sales taxes. Those states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. This year, you may qualify to deduct sales tax on a new car and some real-estate taxes on a principal residence even if you claim the standard deduction.

In 2008, Congress extended a number of tax breaks, including the sales-tax and college-expense deductions; the agency also increased the tax-free contribution limits to health savings accounts. These breaks remain available for your 2009 tax returns. And don't forget about the new breaks, including credits for energy improvements, the new American Opportunity tax credit for college education costs and the credits for buying a new home. Both first-time homeowners and those who have had a principal residence for five consecutive years out of the last eight may qualify.

You can use this simple system all year. Throw all of your receipts into a file or even a shoe box. When you reconcile your checking account, on a monthly or at least a quarterly basis, you break down the checks and receipts according to the categories you selected.

Video: Changing mistakes on your return

By the end of January, you should have all your checks and receipts broken down in each envelope by deduction category. You add up the receipts and checks (don't double count!), and those are the numbers you use on your return or give to your preparer.

That's how much you've spent in each deduction category. And, with this system, you never have to fear an audit.

An audit is nothing more than the IRS asking you to prove the numbers you put on your return. You've already done that. Just hand over the deduction-category envelope with the receipts and checks. After a series of matches, it's going to be a quick audit.

Continued: Analyze the numbers

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