All posts tagged taxes
- As a rule, keep your tax records and supporting documentation until the statute of limitations runs out for filing returns or filing for a refund. For most taxpayers, that means you’ll want to keep those records for three years following the date of filing or the due date of your tax return, whichever is later. So, for example, if you filed your 2011 tax return on April 17, 2012, you’ll want to keep those returns and those records until April 17, 2015.
- If you don’t report all of the income that you should report exactly (if you omit more than 25% of the gross income shown on your return), the statute of limitations is extended. You’ll want to keep those records for six years.
- If you file a clearly fraudulent return or if you don’t file a return at all, the statute of limitations never actually runs. In that event, you’ll want to hold onto your records, well, forever (really, it’s much less work to simply file).
- Supporting documentation for your tax returns includes not only your forms W-2 and 1099, but also bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
- If you claim depreciation, amortization or depletion deductions, you’ll want to keep related records for as long as you own the underlying property. They include deeds, titles and cost basis records. Similarly, if you claim any special deductions or credits, you may need to keep your records a little longer than normal (for example, if you file a claim for a loss from worthless securities or bad debt deduction, you should keep those records for seven years).
- If you have employees, including household employees, keep your employment tax records for at least four years after the date that payroll taxes become due or are paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms.
- You’ll want to keep your records organized — I recommend arranging them by year — and store them in a safe place. The IRS has also been accepting electronic copies of receipts since 1997 so scan your documents and keep them electronically to save you some space. Just be sure they are legible.
Written by: Paul B. Murray, CPA, ABV, CFF
Unscrupulous tax preparers are luring unsuspecting senior citizens into filing claims for fraudulent tax refunds the IRS announced. The scam involves convincing both tax filers and those with little or no income who are not required to file that they are entitled to federal refunds. Their claims are based on false and misleading information often citing nonexistent rules and regulations or “buzz words” that may sound convincing to someone with limited knowledge of the tax code. It’s understandable with the numerous tax rebates, refundable credits, stimulus programs and the ever changing tax laws that an individual may be confused and susceptible to such scams. The IRS provided a list of situations that should be considered an immediate red flag warning to individuals, including the following:
- Fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.
- Unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches.
- Internet solicitations that direct individuals to toll-free numbers and then solicit social security numbers.
- Homemade flyers and brochures implying credits or refunds are available without proof of eligibility.
- Offers of free money with no documentation required.
- Promises of refunds for “Low Income – No Documents Tax Returns.”
- Claims for the expired Economic Recovery Credit Program or for economic stimulus payments.
- Unsolicited offers to prepare a return and split the refund.
- Unfamiliar return preparation firms soliciting business from cities outside of the normal business or commuting area.
The IRS cautions taxpayers to choose wisely when selecting a tax preparer. Ask friends and family for a referral, check web sites, community activity and how long the firm has been in business.
We realize that most of our readers wouldn’t fall prey to such scams but if you have elderly friends, family or neighbors remind them:
When It Sounds Too Good To Be True……………..
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.
In order to make this determination the following factors are considered:
- Does the time and effort put into the activity indicate an intention to make a profit?
- Does the taxpayer depend on income from the activity?
- If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
- Has the taxpayer changed methods of operation to improve profitability?
- Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
- Has the taxpayer made a profit in similar activities in the past?
- Does the activity make a profit in some years?
- Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?
The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.
If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.
Deductions for hobby activities are claimed as itemized deductions on Schedule A (Form 1040). These deductions must be taken in the following order and only to the extent stated in each of three categories:
- Deductions that a taxpayer may take for personal as well as business activities, such as home mortgage interest and taxes, may be taken in full.
- Deductions that don’t result in an adjustment to basis, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
- Business deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.
Michigan lawmakers have proposed a state tax on healthcare claims that would help fund medical care for low-income residents, according to a Detroit News report.
The tax is expected to cost some insurers and employers millions of dollars a year and lead to higher insurance premiums to consumers. Manufacturers and hospitals have come into conflict over the proposed tax, as manufacturers say the tax would halt new hiring and reduce employee benefits and hospitals say they could lose workers if the tax is defeated and Medicaid funding is cut.
Michigan’s 2012 budget, signed by Gov. Rick Snyder on Tuesday, depends on the passage of a 1 percent claims tax to fund Medicaid, which provides healthcare coverage to approximately 1.9 million Michigan residents. The tax would replace a 6 percent use tax that health maintenance organizations currently pay. The current tax does not affect consumers.
The current 6 percent use tax has been endangered by the federal government’s pending decision to disallow its use for federal matching funds. The proposed tax would shift responsibility for paying $400 million towards Medicaid from 14 Medicaid health plans to every health insurer and self-funded employer plan, according to the report.
Read the Detroit News report on Michigan Medicaid. By: Rachel Fields
Let’s take a break from the usual news, to reflect on some of America’s strangest taxes.
Arkansas: Body Piercing Tax
The state spells out which services are subject to the 6% state sales tax. Among them: body piercing, gutter cleaning and pet grooming.
California: Deals for Ottoman Empire Victims
If you were persecuted between 1915 and 1923, you get a tax exemption. If your troubles came in 1924 or later, however, there’s no break.
Hawaii: Deductions Grow On Trees
Grab a $3,000 deduction if your tree was approved by an arborist advisory committee and you get the right notarial stamp.
Maryland: Oyster Break
Maybe the clam and mussel people didn’t make sufficient campaign donations? The aquaculture float credit is available for people harvesting oysters, but not other shellfish.
Minnesota: Toke Tax
Before lighting a joint, you’re supposed to pick up a tax stamp: $3.50 per gram. Lots of other states have marijuana taxes, but not a whole lot of money is collected.
New Jersey: Helping Families
You get a break if you spend more than $35.64 on family leave insurance. A $37 outlay on this worthy cause, for example, would land you $1.36.
New Mexico: If you Are Old and Dependent…
…you don’t do well here. The tax exemption for those 100 and older is explicitly denied to people who can be claimed as dependents.
New York: Haunted House Tax
Musical comedies, operas and chamber music are exempt from the sales tax. But not a Halloween show with music, if the admission charge exceeds 10 cents.
Oregon: Single Amputees Need Not Apply
Some legislator wanted to help the disabled. What a guy! The resulting statute gives a $50 credit to double amputees.
Seattle: Death Tax
If you die in Seattle, you owe the city $50. And if you don’t pay, something bad could happen to you.
South Carolina: Aid for Deceased Deer
You get $50 off your taxes if your deer carcass helps the needy.
U.S.: A Special Deal for Employees
The IRS gives you a break on employee expenses, and here’s the simple version of the form, 2106-EZ. The catch: You have to figure out the instructions, which include this Orwellian line: “An expense does not have to be required to be considered necessary.”
U.S.: Take That, Sewer Pipe Lobbyists!
People mining sagger clay (used in pottery) get the same generous 14% federal depletion allowance accorded to people extracting clam shells, oyster shells and spodumene (never mind what that is). But if your clay shows up in sewer pipes, then you get only 7-1/2%.
Utah: Prudes versus Nudes
This state levies a 10% excise on establishments using exotic dancers.
Source: Forbes.com http://blogs.forbes.com/baldwin/2011/02/08/americas-silliest-taxes/?partner=yahoo
