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Homeowner Records: What To Keep and How Long
Keeping full and accurate homeowner records is vital for determining, not only your home deductions, but also the basis or adjusted basis of your home. These records include your purchase contract and settlement papers if you bought the property or other objective evidence if you acquired it by gift, inheritance, or similar means.
You should also keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. Here's some examples:
In addition, you should keep track of any decreases to the basis. Here's some examples:
How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. And you must keep these records for as long as they are important for the federal tax law.
Keep records that support an item of income or a deduction appearing on a return until the period of limitations for the return runs out. (A period of limitations is the limited period of time after which no legal action can be brought.)
For assessment of tax, this is generally three years from the date you filed the return. For filing a claim for credit or refund, this is generally three years from the date you filed the original return or two years from the date you paid the tax, whichever is later. Returns filed before the due date are treated as filed on the due date.
You may need to keep records relating to the basis of property (discussed earlier) longer than the period of limitations.
Keep those records as long as they are important in figuring the basis of the property. Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you.
Getting The Most From Auto Expenses
If you use a car for business, you have two choices for claiming deductions:
Which method is better?
For some taxpayers, the standard mileage rate produces a larger deduction. Others fare better tax-wise by deducting actual expenses.
Generally, the standard mileage method benefits taxpayers who have less expensive cars or who travel a large number of business miles.
How To Make the Most of Your Auto Deductions
Keep careful records of your travel expenses. We won't be able to determine which of the two options is better for you if you don't know the number of miles driven and the total amount you spent on the car.
Furthermore, the tax law requires that you keep travel expense records and that you give information on your return showing business versus personal use. If you use the actual cost method, you must keep receipts.
How Children Lower Your Taxes
Got Kids? They may have an impact on your tax situation. Here are the top 10 things to consider if you have children.
Got kids? and need more information, contact us. The forms and publications on these topics can also be found on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
You Can Still Make a 2009 IRA Contribution
If you haven't contributed funds to an Individual Retirement Arrangement for tax year 2009, or if you've put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April due date for filing your tax return for 2009, not including extensions.
Be sure to tell the IRA trustee that the contribution is for 2009. Otherwise, the trustee may report the contribution as being for 2009 when they get your funds.
Generally, you can contribute up to $5,000 of your earnings for 2009 or up to $6,000 if you are age 50 or older in 2009. You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.
Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer's pension plan
Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution
You can file your tax return claiming a traditional IRA contribution before the contribution is actually made. However, the contribution must be made by the due date of your return, not including extensions. If you report a contribution to a traditional IRA on your return, but fail to contribute by the deadline, you must file an amended tax return by using Form 1040X, Amended U.S. Individual Income Tax Return. You must add the amount you deducted to your income on the amended return and pay the additional tax accordingly.
Maximizing your retirement savings is a critical goal for an individual's financial plan. Review of your financial retirement plan should be completed annually allowing for maximum savings. Each year, the IRS announces the cost of living adjustments and limitation for retirement savings plans. In 2010, however, the contribution limits for defined benefit and defined contribution plans did not change as the Consumer Price Index did not meet the regulatory thresholds.
Itemizers Can Deduct Certain Taxes
Did you know that you may be able to deduct certain taxes on your federal income tax return? You can receive these deductions if you file Form 1040 and itemize deductions on Schedule A. Deductions decrease the amount of income subject to taxation.
There are five types of deductible non-business taxes:
Call us for more information on non-business deductions for taxes, or see IRS Publication 17, Your Federal Income Tax, under Chapter 22, Taxes.
Estimated Tax Payments - Q&A
Question: How do I know if I have to file quarterly individual estimated tax payments?
Answer: If you owed additional tax for the prior tax year, you may have to make estimated tax payments for the current tax year.
You must make estimated tax payments for the current tax year if both of the following apply:
There are special rules for:
Contact us if you are unsure of your need to make an estimated tax payment. The first estimated payment for 2010 is due April 15, 2010.
Two New Tax Credits to Lower Your Tax Bill
Two special tax credits offer taxpayers an opportunity to lower their tax bill or increase their refunds this filing season. Both credits are claimed on new Schedule M, Making Work Pay and Government Retiree Credits.
The making work pay credit helps millions of workers and self-employed individuals, while the government retiree credit especially targets former government workers who aren't receiving Social Security benefits. Income limits apply to the making work pay credit but not to the government retiree credit. Both credits are refundable,meaning that those eligible can get them even if they owe no tax. Here are further details on each of these credits.
Making Work Pay Credit
Most eligible taxpayers qualify for the maximum making work pay credit of $800 for a married couple filing a joint return or $400 for other taxpayers. The credit equals 6.2 percent of earned income up to the maximum amount. Thus, any eligible couple whose earned income is $12,903 or more qualifies for the $800 maximum credit. Other taxpayers qualify for the $400 maximum if their earned income is $6,451 or more.
For most workers, the credit is based on the taxable wages reported to them on Forms W-2. Self-employed individuals figure the credit using the net profit or loss they receive from a business or farm. Additional calculations are necessary for some taxpayers, including those who have net business losses, wages from work performed while a prison inmate or foreign earned income. More information, including a worksheet, can be found in the instructions for Schedule M.
Some taxpayers are not eligible for the making work pay credit, including:
Other taxpayers qualify for the credit but must reduce the amount of the credit they claim, including:
Though all eligible taxpayers must file Schedule M to claim the making work pay credit, most workers got the benefit of this credit through larger paychecks, reflecting reduced federal income tax withholding during 2009.
Government Retiree Credit
This credit is designed to provide a benefit equivalent to the economic recovery payment to those government retirees who did not qualify for these payments. Retired federal, state or local government employees who receive pensions in 2009, based on work not covered by Social Security, are eligible to claim this credit. The credit is $250. For joint filers the credit is $500 if both spouses are retired government employees who receive pensions based on work not covered by Social Security. The credit cannot be claimed by an individual if he or she received an economic recovery payment during 2009. See Schedule M and its instructions for details.
Getting QuickBooks Ready for Tax Preparation
Seems like you just finished doing your taxes, and here they come again. Whether you prepare them yourselves, hand them off to an accounting professional, or send data to a tax preparation product, QuickBooks can help you get ready.
Here's how. This is not a comprehensive list of tasks you'll need to undertake to prepare for taxes. Rather, it's an overview of QuickBooks' most tax-specific tools. QuickBooks supports many business tax forms, including the 1040, 1120, and 1065, and the steps outlined here apply to all small business tax filers using QuickBooks Pro, Premier, and Enterprise.
If you haven't already (and you should have), order your W-2 and 1099 Kits
These forms must be filed at the beginning of each year; they report employee wages and salaries to Federal, state, and local agencies. Data is printed directly from QuickBooks onto the correct line in the forms. You can purchase these kits (shown in Figure 1) directly from Intuit, and you must have a Standard Payroll or Enhanced Payroll subscription in a supported version to process them.
Figure 1: Intuit sells kits that help you print QuickBooks tax data directly on the correct forms.
Check the Company Information window to make sure it reflects the right tax form
This is crucial no matter who is preparing your taxes. You should have been thinking ahead to tax time when you set up your company in QuickBooks, but you can take this step prior to starting your prep.
Make sure you've specified the appropriate tax form for use in QuickBooks. Go to Company|Company Information, as shown in Figure 2. At the bottom of the window, find the Income Tax Form Used line, and make sure it's set to the correct form.
Figure 2: On the Company Information window, be sure that the Income Tax Form Used line is pointing at the correct form.
In this same window, check the fiscal year dates to make sure they're correct, and that other tax-related fields are filled out accurately.
Make sure your tax-related accounts are assigned to the correct tax line on the form
If you used the EasyStep interview for setup, QuickBooks automatically assigned some accounts to the correct tax line. You can change these at any time, and add your own accounts. This Tax-Line Mapping will be important down the road if you export data to an Intuit tax product and/or run tax reports.Warning: Altering the Chart of Accounts is a precise operation, and affects many parts of QuickBooks. You may want to consult with an accounting professional.
Click Lists|Chart of Accounts. Select an account, like Interest Expense, and right-click on it. Click Edit Account, and the window shown in Figure 3 appears.
Figure 3: QuickBooks lets you do Tax-Line Mapping, which specifies the relationship between accounts and tax form lines.
If you want to change the tax line, click the arrow to the right of the current selection and choose the correct one from the drop-down list. To add an account, click Lists|Chart of Accounts. In the bottom left of the screen, click the arrow in the Account button. Click New, and follow the instructions in the wizard that opens.
Run tax-related reports
QuickBooks provides three reports that you'll need whether you or your accountant is preparing your taxes. To find them, click Reports|Accountant & Taxes.
The first report is the Income Tax Preparation Report. This lays out a list of your accounts and the tax line each is assigned to. If any that need to be assigned are unassigned, double-click on them to get to the Tax-Line Mapping window, as shown in Figure 4.
Figure 4: The Tax Preparation Report illustrates how your accounts have been assigned to tax form line items.
Two other reports are available: Income Tax Summary and Income Tax Detail, which are just what they sound like. They provide detailed and summarized lists of transactions and their totals. You can drill down on these to see the underlying transactions.
Warning: When you run Income Tax Summary, look for a line that says Tax Line Unassigned (income/expense). Double-click on any total there to see accounts that need to be assigned to a tax line, as shown here in Figure 5.
Figure 5: You can quickly check your accounts in the Income Tax Summary.
QuickBooks lets you modify these reports to include additional columns, and memorize them for easy access later. Click the Modify Report and Memorize buttons in the upper left corner to do so.
You can't avoid taxes, but you can sure take a lot of the pain out of their preparation by using QuickBooks throughout the year to get ready. And you may get a smile out of your accountant when you hand over your carefully created records.
Required Minimum Distribution
Review Budget vs. Actuals
Estimated Tax Payments
Tax Due Dates for March 2010
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