Keep Good Records Now to Reduce Tax-Time Stress
August 26th, 2011
You may not be thinking about your tax return right now, but summer is a
great time to start planning for next year. Organized records not only make
preparing your return easier, but may also remind you of relevant transactions,
help you prepare a response if you receive an IRS notice, or substantiate items
on your return if you are selected for an audit.
Here are a few things you should know about recordkeeping.
1. In most cases, the IRS does not require you to keep records in any
special manner. Generally, you should keep any and all documents that may have
an impact on your federal tax return. It’s a good idea to have a designated
place for tax documents and receipts.
2. Individual taxpayers should usually keep the following records supporting
items on their tax returns for at least three years:
- Credit card and other receipts
- Mileage logs
- Canceled, imaged or substitute checks or any other
proof of payment
- Any other records to support deductions or credits you
claim on your return
You should normally keep records relating to property until at least three
years after you sell or otherwise dispose of the property. Examples include:
- A home purchase or improvement
- Stocks and other investments
- Individual Retirement Arrangement transactions
- Rental property records
3. If you are a small business owner, you must keep all your employment tax
records for at least four years after the tax becomes due or is paid, whichever
is later. Examples of important documents business owners should keep Include:
- Gross receipts: Cash register tapes, bank deposit
slips, receipt books, invoices, credit card charge slips and Forms
- Proof of purchases: Canceled checks, cash register tape
receipts, credit card sales slips and invoices
- Expense documents: Canceled checks, cash register
tapes, account statements, credit card sales slips, invoices and petty
cash slips for small cash payments
- Documents to verify your assets: Purchase and sales
invoices, real estate closing statements and canceled checks
Nine Tips for Charitable Taxpayers
August 22nd, 2011
If you make a donation to a charity this year, you may be able to take a
deduction for it on your 2011 tax return. Here are the top nine things the IRS
wants every taxpayer to know before deducting charitable donations.
- Make sure the
organization qualifies Charitable contributions must be made to qualified
organizations to be deductible. You can ask any organization whether it is
a qualified organization or check IRS Publication 78, Cumulative List of
Organizations. It is available at www.IRS.gov.
- You must itemize Charitable
contributions are deductible only if you itemize deductions using Form
1040, Schedule A.
- What you can deduct You generally can
deduct your cash contributions and the fair market value of most property
you donate to a qualified organization. Special rules apply to several
types of donated property, including clothing or household items, cars and
- When you receive
something in return If your contribution entitles you to receive
merchandise, goods, or services in return – such as admission to a charity
banquet or sporting event – you can deduct only the amount that exceeds
the fair market value of the benefit received.
- Recordkeeping Keep good records of
any contribution you make, regardless of the amount. For any cash
contribution, you must maintain a record of the contribution, such as a
cancelled check, bank or credit card statement, payroll deduction record
or a written statement from the charity containing the date and amount of
the contribution and the name of the organization.
- Pledges and payments Only contributions
actually made during the tax year are deductible. For example, if you
pledged $500 in September but paid the charity only $200 by Dec. 31, you
can only deduct $200.
- Donations made near the
end of the year
Include credit card charges and payments by check in the year you give
them to the charity, even though you may not pay the credit card bill or
have your bank account debited until the next year.
- Large donations For any contribution of
$250 or more, you need more than a bank record. You must have a written
acknowledgment from the organization. It must include the amount of cash
and say whether the organization provided any goods or services in
exchange for the gift. If you donated property, the acknowledgment must
include a description of the items and a good faith estimate of its value.
For items valued at $500 or more you must complete a Form 8283, Noncash
Charitable Contributions, and attach the form to your return. If you claim
a deduction for a contribution of noncash property worth more than $5,000,
you generally must obtain an appraisal and complete Section B of Form 8283
with your return.
- Tax Exemption Revoked Approximately 275,000
organizations automatically lost their tax-exempt status recently because
they did not file required annual reports for three consecutive years, as
required by law. Donations made prior to an organization’s automatic
revocation remain tax-deductible. Going forward, however, organizations
that are on the auto-revocation list that do not receive reinstatement are
no longer eligible to receive tax-deductible contributions.
Back-to-School Tips for Students and Parents Paying College Expenses
August 16th, 2011
Whether you’re a recent graduate going to college for the first time or a
returning student, it will soon be time to get to campus – and payment
deadlines for tuition and other fees are not far behind. The Internal Revenue
Service reminds students or parents paying such expenses to keep receipts and
to be aware of some tax benefits that can help offset college costs.
Typically, these benefits apply to you, your spouse or a dependent for whom
you claim an exemption on your tax return.
- American Opportunity
This credit, originally created under the American Recovery and
Reinvestment Act, has been extended for an additional two years – 2011 and
2012. The credit can be up to $2,500 per eligible student and is available
for the first four years of post secondary education. Forty percent of
this credit is refundable, which means that you may be able to receive up
to $1,000, even if you owe no taxes. Qualified expenses include tuition
and fees, course related books, supplies and equipment. The full credit is
generally available to eligible taxpayers whose modified adjusted gross
income is below $80,000 ($160,000 for married couples filing a joint
- Lifetime Learning
In 2011, you may be able to claim a Lifetime Learning Credit of up to
$2,000 for qualified education expenses paid for a student enrolled in
eligible educational institutions. There is no limit on the number of
years you can claim the Lifetime Learning Credit for an eligible student,
but to claim the credit, your modified adjusted gross income must be below
$60,000 ($120,000 if married filing jointly).
- Tuition and Fees
This deduction can reduce the amount of your income subject to tax by up
to $4,000 for 2011 even if you do not itemize your deductions. Generally,
you can claim the tuition and fees deduction for qualified higher
education expenses for an eligible student if your modified adjusted gross
income is below $80,000 ($160,000 if married filing jointly).
- Student loan interest
Generally, personal interest you pay, other than certain mortgage
interest, is not deductible. However, if your modified adjusted gross
income is less than $75,000 ($150,000 if filing a joint return), you may
be able to deduct interest paid on a student loan used for higher
education during the year. It can reduce the amount of your income subject
to tax by up to $2,500, even if you don’t itemize deductions.
For each student, you can choose to claim only one of the credits in a
single tax year. However, if you pay college expenses for two or more students
in the same year, you can choose to take credits on a per-student, per-year
basis. You can claim the American Opportunity Credit for your sophomore daughter
and the Lifetime Learning Credit for your senior son.
You cannot claim the tuition and fees deduction for the same student in the
same year that you claim the American Opportunity Credit or the Lifetime
Learning Credit. You must choose to either take the credit or the deduction and
should consider which is more beneficial for you.
Ten Tax Tips for Individuals Who Are Moving This Summer
August 15th, 2011
Summertime is a popular time for people with children to move since school
is out. Moving can be expensive, but the IRS offers 10 tax tips on deducting
some of those expenses if your move is related to starting a new job or a new
- Move must be closely
related to start of work Generally, you can consider moving expenses incurred
within one year from the date you first reported to a new location, as
closely related in time to the start of work.
- Distance Test Your move meets the
distance test if your new main job location is at least 50 miles farther
from your former home than your previous job location was.
- Time Test You must work full time
for at least 39 weeks during the first 12 months after you arrive in the
general area of your new job location, or at least 78 weeks during the
first 24 months if you are self-employed. If your income tax return is due
before you’ve satisfied this requirement, you can still deduct your
allowable moving expenses if you expect to meet the time test in the
- Travel You can deduct lodging
expenses for yourself and household members while moving from your former
home to your new home. You can also deduct transportation expenses,
including airfare, vehicle mileage, parking fees and tolls you pay to
move, but you can only deduct one trip per person.
- Household goods You can deduct the cost
of packing, crating and transporting your household goods and personal
property. You may be able to include the cost of storing and insuring
these items while in transit.
- Utilities You can deduct the
costs of connecting or disconnecting utilities.
- Nondeductible expenses You cannot deduct as
moving expenses: any part of the purchase price of your new home, car
tags, drivers license, costs of buying or selling a home, expenses of
entering into or breaking a lease, security deposits and storage charges
except those incurred in transit.
- Form You can deduct only
those expenses that are reasonable for the circumstances of your move. To
figure the amount of your moving expense deduction use Form 3903, Moving
- Reimbursed expenses If your employer
reimburses you for the cost of the move, the reimbursement may have to be
included on your income tax return.
- Update your address When you move, be sure
to update your address with the IRS and the U.S. Postal Service to ensure
you receive refunds or correspondence from the IRS. Use Form 8822, Change
of Address, to notify the IRS.
Ten Tips for Taxpayers Who Owe Money to the IRS
August 7th, 2011
While the majority of Americans get a tax refund from the Internal Revenue
Service each year, there are many taxpayers who owe and some who can’t pay the
tax all at once. The IRS has a number of ways for people to pay
their tax bill.
The IRS has announced an effort to help struggling taxpayers get a fresh
start with their tax liabilities. The goal of this effort is to help
individuals and small business meet their tax obligations, without adding
unnecessary burden. Specifically, the IRS has announced new policies and
programs to help taxpayers pay back taxes and avoid tax liens.
Here are ten tips for taxpayers who owe money to the IRS.
- Tax bill payments If you get a bill this
summer for late taxes, you are expected to promptly pay the tax owed
including any penalties and interest. If you are unable to pay the
amount due, it is often in your best interest to get a loan to pay the
bill in full rather than to make installment payments to the IRS.
- Additional time to pay Based on your
circumstances, you may be granted a short additional time to pay your tax
in full. A brief additional amount of time to pay can be requested through
the Online Payment Agreement application at www.irs.gov
or by calling 800-829-1040.
- Credit card payments You can pay your bill
with a credit card. The interest rate on a credit card may be lower than
the combination of interest and penalties imposed by the Internal Revenue
Code. To pay by credit card contact one of the following processing
companies: Link2Gov at 888-PAY-1040 (or www.pay1040.com),
RBS WorldPay, Inc. at 888-9PAY-TAX (or www.payUSAtax.com),
or Official Payments Corporation at 888-UPAY-TAX (or www.officialpayments.com/fed).
- Electronic Funds
You can pay the balance by electronic funds transfer, check, money order,
cashier’s check or cash. To pay using electronic funds transfer, use
the Electronic Federal Tax Payment System by either calling 800-555-4477
or using the online access at www.eftps.gov.
- Installment Agreement You may request an
installment agreement if you cannot pay the liability in full. This is an
agreement between you and the IRS to pay the amount due in monthly
installment payments. You must first file all required returns and be
current with estimated tax payments.
- Online Payment Agreement
you owe $25,000 or less in combined tax, penalties and interest, you can
request an installment agreement using the Online Payment Agreement
application at www.irs.gov.
- Form 9465 You can complete and
mail an IRS Form 9465, Installment Agreement Request, along with your bill
in the envelope you received from the IRS. The IRS will inform you
(usually within 30 days) whether your request is approved, denied, or if
additional information is needed.
- Collection Information
You may still qualify for an installment agreement if you owe more than
$25,000, but you are required to complete a Form 433F, Collection
Information Statement, before the IRS will consider an installment
- User fees If an installment
agreement is approved, a one-time user fee will be charged. The user
fee for a new agreement is $105 or $52 for agreements where payments are
deducted directly from your bank account. For eligible individuals
with lower incomes, the fee can be reduced to $43.
- Check withholding Taxpayers who have a
balance due may want to consider changing their W-4, Employee’s
Withholding Allowance Certificate, with their employer. A withholding
calculator at www.irs.gov can help
taxpayers determine the amount that should be withheld.