What do I do if I receive a notice from the IRS about
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
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
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
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
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
Are there plans with tax savings for
Qualified retirement plan distributions if you separated
from service in or after the year you reach age 55 (does
not apply to IRAs).
Distributions made as a part of a series of substantially
equal periodic payments (made at least annually) for your
life or the joint lives of you and your designated
Distributions due to total and permanent disability.
Distributions due to death (does not apply to modified
Qualified retirement plan distributions up to (1) the
amount you paid for unreimbursed medical expenses during
the year minus (2) 7.5% of your adjusted gross income for
IRA distributions made to unemployed individuals for health
IRA distributions made for higher education expenses.
IRA distributions made for the purchase of
a first home (up to $10,000).
Distributions due to an IRS levy on the qualified
Qualified distributions to reservists while serving on
active duty for at least 180 days.
The main plans for saving for college are the 529 plans and the
What is a 529 plan?
A Qualified Tuition Program (QTP), also called a "529 plan," is
established and maintained to let you either prepay or
contribute to an account established for paying a student's
qualified higher education expenses at an eligible institution.
States and eligible educational institutions can establish and
maintain a QTP. You do not get any federal deductions for the
account, but any income earned in it is tax-free. One of the
big advantages of a 529 plan is that many states allow you to
deduct some contributions to the plan from your state tax
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
What do I need to keep for my charitable
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
All contributions must be made to qualified charitable
If I donate my vehicle to charity, how much can I deduct on my
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
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
What is an amended return, and when should I file
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
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
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
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.
When can I make contributions to my IRA?
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). Thus for tax year 2007, you can make contributions from
January 1, 2007 through April 15, 2008.
What are the differences between a Roth and a
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.
Are there plans with tax savings for
The main plans for saving for college are the 529 plans and the
What is a 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.
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
What are the tax consequences of selling a
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
If I buy a new home, can I deduct my moving
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.
The distance test is that your new principal workplace must
be at least 50 miles farther from your old home than your
The time test states that you must work full-time in the
general area of your new workplace for at least 39 weeks
during the 12 months right after you move.
You can claim this deduction even if you expect to work but
haven’t started working at the time you file your
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
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
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
You paid over half the cost of keeping up your home for
Your home was the main home of your child for over half of
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
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
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
You can claim this deduction only if you use a part of your
home regularly and exclusively:
As your principal place of business for any trade or
As a place to meet or deal with your patients, clients or
customers in the normal course of your trade or
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
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!
The first option is to enter into an installment agreement
with the IRS. To do this you need to fill out
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.