What do I do
if I receive a notice from the IRS about my
taxes?
Don’t panic! the first thing to do is carefully read
the notice—to determine why it was sent, what the IRS
is requesting, and what they want you to do. It may be
nothing of importance; it may even be a notice in your favor.
After reading it you should bring it to our attention.
What is the
difference between a C and an S
corporation?
A C Corporation and an S Corporation are exactly the same in
respect to liability protection. The difference is in how you
are taxed. A C Corporation has what is referred to as a
double taxation. First the corporation is taxed, and secondly
the dividends are taxed on the shareholders’ tax
returns. An S Corporation is not taxed at the corporate
level, only at the shareholder level. Most small businesses
are eligible to file as S corporations. But the appropriate
election must be made.
What do I need
to bring when I am having my taxes
prepared?
Following is a list of the more common items you should bring
if you have them.
- Wage statements (Form W-2)
- Pension, or retirement income (Forms 1099-R)
- Dependents' Social Security numbers and dates of birth
- Last year's tax return
- Information on education expenses
- Information on the sales of stocks and/or bonds
- Self-employed business income and expenses
- Lottery and/or gambling winnings and losses
- State refund amount
- Social Security and/or unemployment income
- Income and expenses from rentals
- Record of purchase or sale of real estate
- Medical and dental expenses
- Real estate and personal property taxes
- Estimated taxes or foreign taxes paid
- Cash and non-cash charitable donations
- Mortgage or home equity loan interest paid (Form 1098)
- Unreimbursed employment-related expenses
- Job-related educational expenses
- Child care expenses and provider information And any other
items that you think may be necessary for your taxes.
How do I find
out about my refund?
The best way is to use the Check Your Refund link from the
Resources pages of our website! To look up the status of your
federal or state refund, you will need your social security
number, filing status, and exact amount you’re
expecting back.
How long do I
keep my records and tax returns?
You should keep your records and tax returns for at least 3
years from the date the return was filed or the date the
return was required to be filed, whichever is later. It is
recommended that you keep these records longer if
possible.
What are the
consequences of early withdrawals from my retirement
plans?
If you withdraw money from a 401(k) or an IRA before age 59
½, the distribution is taxable and there is a 10%
penalty on the taxable amount. The main exceptions
that let you withdraw money early without penalty are as
follows:
What college
expenses may I deduct?
There are several ways you can claim deductions for college
expenses on your tax return. They are the tuition deduction,
the HOPE credit and the Lifetime Learning Credit. If we are
preparing your return we will determine which ones you
qualify for and which one gives you the greatest tax
benefit.
What is the
child tax credit?
The child tax credit is a credit of $1000 per child from the
IRS. In order to qualify the child must: 1. Be under 17 at
the end of the tax year 2. Be a citizen of the United States
3. Be your child 4. Live with you for more than half the year
5. Not be treated as the qualifying child of someone else
What medical
expenses are deductible?
A deduction is allowed only for expenses paid for the
prevention or alleviation of a physical or mental defect or
illness. Medical care expenses include payments for the
diagnosis, cure, mitigation, treatment, or prevention of
disease, or treatment affecting any structure or function of
the body. Except for insulin, only prescription drugs are
deductible. The cost of health insurance is deductible. You
may also deduct the cost of traveling to and from the care
provider. You can deduct only the part of your medical and
dental expenses that exceeds 7.5% of your adjusted gross
income.
What do I need
to keep for my charitable
contributions?
All contributions must be made to qualified charitable
organizations.
If I donate my
vehicle to charity, how much can I deduct on my tax
return?
In the past there were a lot of charities asking you to
donate your car, and there were a lot overinflated appraisals
of the fair market value for these vehicles. But recently the
IRS has gotten stricter on the way you determine the value of
your car. Now you must claim the actual amount the charity
received at an auction to sell the car, and the charity
should give you timely acknowledgment to claim the deduction.
If the vehicle is actually used by the charity instead of
sold at auction, then you may claim the vehicle's fair market
value.
What are the
tax consequences of buying a home?
The main tax consequence of buying a home is that you may be
able to deduct the property taxes you pay and any mortgage
interest you pay. Points you pay may also be deductible.
Please contact our office to determine the eligibility.
Normal expenses for maintaining a home are not deductible,
but you should keep records of any major expenses for repairs
or improvements. I you have a taxable gain when you sell your
home, these expenses may be deductible.
I received tax
statements from my employer or bank after I filed my tax
return. What should I do?
If we filed your return, bring the new tax documents to our
office. We will determine if it is necessary for you to file
an amended return.
What is an
amended return, and when should I file one?
An amended return is simply a return filed with the IRS
and/or state because of an error or an omission on your
original return. You should file an amended return if there
is a material difference between the original return and your
new changes. As of now, an amended return cannot be
electronically filed, and any expected refunds will take
longer to receive than the original return (2-3 months,
according to the IRS). Generally to claim a refund, your
amended return must be filed within 3 years from the date of
your original return or within 2 years from the date you paid
the tax, whichever is later.
I
haven’t been filing my tax returns what should I
do?
First, you must determine if you were required to file in the
years you did not file. There are many different items that
could figure into this—such as your filing status, your
sources of income, whether you had any tax withheld, etc.
This is a link to the IRS instructions for filing
requirements for 2007:
http://www.irs.gov/individuals/article/0,,id=96623,00.html.
If you determine you should have filed, contact us and we can
handle all of your prior year filings. It is very important
that you do not just continue to not file. If you owe money
the penalties for not filing are high. If you are owed a
refund you will lose your claim to it 3 years after the due
date of the return.
Is my social
security taxable?
Usually if your income including social security benefits is
less than $25,000 if single or $32,000 if married, your
benefits are not taxable. If your income is higher than those
limits, there are formulas to determine what percentage of
your social security is taxable. Currently up to 85% of your
social security may be taxable.
What are the
differences between a Roth and a conventional
IRA?
A traditional IRA lets you deduct contributions in the year
you make them, and the distributions are included as
income on your return when you withdraw from the IRA after
reaching age 59½. A Roth IRA does not let you deduct
the contributions, but you also do not report the
distributions as income, no matter how much the Roth account
has appreciated. With a Roth, you can exclude the income
earned in the account from being taxed.
I donate my
time and drive for charity wearing a uniform. What may I
deduct?
If you drive to and from volunteer work, you may deduct
either the actual cost of gas and oil or a standard amount of
14 cents per mile. Please note that any mileage reimbursement
in excess of 14 cents per mile must be treated as income. You
may also deduct the cost of buying and cleaning uniforms if
the uniforms are not suitable for everyday use, and you must
wear them when volunteering. You may not claim a deduction
for the value of your time.
What are the
tax consequences of selling a home?
If you sell your personal residence you can totally exclude
from income up to $250,000 of gain if you are single, or
$500,000 if married, regardless of your age at the time of
the sale—if during the 5 years before the sale you
owned the home and lived in it for a total of any 24 months.
The exclusion is not a one-time election; instead it is
available once every 2 years. Recent tax law has adversely
changed the handling of gains on the sale of a home if you
rented the property before you made it your personal
residence. Please contact our office if you believe this
situation will affect you.
If I buy a new
home, can I deduct my moving expenses?
If you move to a new home because of a new principal
workplace, you may be able to deduct your moving expenses. To
do so, you must meet the conditions for both the distance and
the time tests.
You can claim this deduction even if you expect to work but
haven’t started working at the time you file your
return.
Expenses you can deduct are transportation and storage of
household goods and personal items and travel including
lodging from your old home to your new home. Expenses of
trips for house hunting are not deductible.
If your employer reimburses you for these expenses, your
deduction may be limited. If you spent less than the
reimbursement you will have to report a portion for income.
Please do not hesitate to call us if you have any questions
about these rules.
How does
getting married affect my taxes?
When you get married you will have the option of filing a
joint tax return. In this case the one return will report the
income and deductions of both spouses. The IRS has eliminated
most cases where you would have saved taxes by remaining
single. You also have the option to file as married filing
separately, but in most cases this will increase your
taxes.
Do I have to
file a joint return with my spouse?
No, you can file either as married filing joint or married
filing separate. If you file separately your taxes will most
likely be higher. Many credits—such as earned income,
education (Hope and lifetime learning), and child
care—are not allowed when you file separately.
There are special circumstances where people who are married
but either do not want to or cannot file with their spouse
can file as Head of Household, which therefore entitles them
to these credits and a lower tax bracket. In order to qualify
as a Head of Household you must meet the following
conditions
§
You lived apart from your spouse for the last six months of
the tax year.
Temporary absences for special circumstances, such as for
business, medical care, school, or military service, count as
time lived in the home.
§
You filed a separate return from your
spouse.
§
You paid over half the cost of keeping up your home for
2008.
§
Your home was the main home of your child for over half of
the year.
§
You can claim this child as your dependent.
If you do not meet all these conditions but are legally
separated as of the last day of the year, you may also
qualify to file as single.
How should I
keep records for my business driving?
Keep a log in your vehicle and record the purpose and mileage
of each trip. You also need to record the odometer readings
at the beginning and end of each year, as the IRS will ask
you for total miles driven during the year. Keep your repair
bills as these normally record odometer readings when the car
is serviced.
My employer
tells me I will receive a 1099. What does this mean for my
taxes?
When you receive a 1099, it means you are considered an
independent contractor. You will not have any withholding or
payroll taxes deducted from your pay. You should keep track
of all business expenses and a journal of your mileage driven
for work. If the amount you expect to receive is substantial,
you should probably be making estimated tax payments. Please
contact us if you have any questions about this.
Can I deduct
expenses for a business run out of my home?
If you use a portion of your home for business purposes, you
may be able to take a home office deduction whether you are
self-employed or an employee. Expenses you may be able to
deduct for business use of your home may include the business
portion of real estate taxes, mortgage interest, rent,
utilities, insurance, depreciation, painting, and
repairs.
You can claim this deduction only if you use a part of your
home regularly and exclusively:
Generally, the amount you can deduct depends on the
percentage of your home that you used for business. Your
deduction will be limited if your gross income from your
business is less than your total business expenses.
What is
depreciation?
For tax purposes, depreciation is the expensing of the cost
of an item over its estimated useful life. If property you
acquire to use in your business is expected to last more than
one year, you generally cannot deduct the entire cost as a
business expense in the year you acquire it. You must spread
the cost over more than one tax year and deduct part of it
each year. This method of deducting the cost of business
property is called depreciation. There are many different
methods of depreciation and other rules that allow you to
claim the expense in one year.
I owe the IRS
money. What are my options?
If you can afford to pay the amount you owe, it should be
paid. But many times that is not the case. If you cannot
afford to pay, you have several options. Ignoring the IRS
should not be one of them!