Tax and IRS FAQ

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.

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.

You should keep your records and tax returns for at least 7 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.

First, is your contribution cash or non-cash?

• If you make a cash donation, you must have a bank record or written communication from the charity showing the name of the charity and the amount of the donation.
  A bank record can be the cancelled check or a statement from a bank or credit union—so long as it lists the charity’s name, the date, and the amount of the contribution.
  Personal records such as bank registers, diaries and notes are no longer considered acceptable proof of contributions.
• Any used items (such as clothing, linens, appliances, etc.) must be in good condition and may only be deducted at the price you could reasonably ask for the item in used condition.
  For contributions worth $250 or more, you must have a written receipt or letter from the organization. For contributions worth $500 or more,
  you must file Form 8283 (Noncash Charitable Contributions) and attach it to your Form 1040.

All contributions must be made to qualified charitable organizations.

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.
If you have a taxable gain when you sell your home, these expenses may be deductible.

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.

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.

Generally for any tax year, you can make a contribution to your IRA up until the original due date of the return (usually April 15).

The main plans for saving for college are the 529 plans and the Coverdell plan.

A Coverdell Education Savings Account (ESA) is an account created as an incentive to help parents and students save for education expenses.
You do not get any deductions for the account but any income earned in it is tax-free. To be exempt from tax, distributions from an ESA must be used for qualified education expenses,
such as tuition and fees, required books, supplies and equipment, and qualified expenses for room and board. Coverdell distributions can be used to pay for private schools from grades K-12 in addition to college.

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.

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.

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.

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!

• The first option is to enter into an installment agreement with the IRS. To do this you need to fill out Form 9465, Installment Agreement Request.
  This form is fairly easy to complete, but we strongly recommend that if you owe a substantial amount of money you work with us to secure your agreement.
• The second option, which is much harder to get approved, is an offer in compromise. The IRS will be reluctant to do this if they feel you have the resources to eventually pay.
  You should not attempt an offer in compromise without professional help you can trust. The IRS has also issued a consumer alert, advising taxpayers to beware of promoters’
  claims that tax debts can be settled for “pennies on the dollar” through the Offer in Compromise Program.