Are you ready to do some spring cleaning?  I know I am!

One of my goals this summer is to do some “spring cleaning.”  Since most of my spring is spent doing taxes and wrapping up tax season, my spring cleaning is going to have to start in July this year.

Although our house is well maintained by my wife – she has the fun job of picking up after me and the kids – we always seems to find items around the house we don’t have a use for anymore.  And I think we’re about ready to do go through the house again.

I know some people enjoy doing garage sales and/or selling things on Craigslist or eBay, but for some reason, I don’t.  If you enjoy selling things through those means, than by all means do it, you may even do better than the tax deduction you could receive by donating.

However, if you’re like me, and you would rather donate to Goodwill or some other charity, than here are some tips for you that could save you time and money at tax time.

Things to do before you donate your goods that could save you time and money on your taxes!

1.  Take a quick picture of what you’re donating.

2.  Take a quick inventory.  Count all shirts, pants, books, etc.

3.  Use this valuation sheet from Goodwill to help determine the value of your goods.

That’s it!

Above all, keep it simple!

I’ve seen some people spend hours on figuring out the cost of everything.  If you enjoy that kind of stuff, than by all means have fun.  But if you’re like most people, keep it simple, and don’t stress.

One more thing to keep in mind – for now, the only way to receive a tax deduction on your tax return for donating goods to charity is if you itemize.  If you have any questions regarding this, please feel free to contact me anytime.

*Please keep in mind that all the information I post on this site is for general purposes only.  I understand that every person’s situation is unique and should be treated as such.  If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime. 

During tax season I often get asked about what tax records should be kept and for how long.

For this week’s post, I’m going to focus on the basics and provide some good general rules of thumb.

For starters, it’s good to know that even the IRS has a statute of limitations. The statute of limitations limits the number of years during which the IRS can audit your previously filed tax returns. Once that period has expired, the IRS is legally prohibited from asking you questions about those returns.

One major exception to this rule is “fraudulent” returns. 

If you file a “fraudulent” return, or don’t file at all, the limitations period doesn’t apply. In fact, the IRS can get you at any time!

But, since I know this doesn’t apply to anyone smart enough to be reading this article, let’s get to the good stuff.

The reasoning behind the statute of limitations is that, as we all know, after a period of years, records can become lost or misplaced and our memory isn’t as accurate as we would hope.

Once the statute of limitations has expired, the IRS can’t go after you for additional taxes, but you can’t go after the IRS for additional refunds, either.

The Three-Year Rule

Generally speaking, the IRS has three years from the date you file your return to assess additional taxes.  Conversely, if you’re looking for an additional refund, the limitations period is generally the later of three years from the date you filed the original return or two years from the date you paid the tax.

A couple exceptions:

• The IRS has six years to challenge your return if it thinks you underreported your gross income by 25 percent or more.
• If you’ve claimed a loss from a worthless security, the limitation period is extended to seven years.

My Suggestion: You Can Throw Away After Seven Years

Although the IRS has three years from your filing date to audit your return if it suspects good-faith errors, I usually tell people to keep their records for seven years for safe measure.  A few extra returns is not going to take up that much more space in your file and it’s good to always be prepared.

That being said, if you’re in your 40’s and you’re still holding on to your tax returns from when you were in college, you’re probably safe now, and can shred those returns.

If you do ever need any tax or financial advice focused on your specific situation, feel free to contact me anytime.

*Please keep in mind that all the information I post on this site is for general purposes only.  I understand that every person’s situation is unique and should be treated as such.  If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime. 

For the past two tax years – 2009 & 2010 – many of us have received the Making Work Pay Credit.

This credit expired at the end of 2010, and was not part of the two year tax extensions congress passed at the end of last year.  You can see this credit on line 63 of the 1040 after filling out and completing Schedule M.

The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.

As with all tax credits, there are some restrictions and limitations, but for the most part, many tax payers have been able to receive this credit over the past two years.

Say ‘Goodbye’

The 2010 tax year is the last year the Making Work Pay Credit will be available on our taxes.

All things being completely equal, if your 2011 tax situation looks like it is going to be the same as your 2010, your refund will go down by $800, if you’re married filing jointly, and $400 for other taxpayers.

Conversely, if you owed additional taxes to the IRS in 2010, and you expect your 2011 taxes to be the same, you will most likely owe an additional $800 if you’re married filing jointly, and $400 for other taxpayers.

Plan Ahead

If you did receive the Making Work Pay Credit in 2010, plan ahead and make the necessary changes so that you will not be surprised next year.

If you do ever need any tax or financial advice focused on your specific situation, feel free to contact me anytime.

*Please keep in mind that all the information I post on this site is for general purposes only.  I understand that every person’s situation is unique and should be treated as such.  If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.

Do you enjoy getting a tax refund every year?  Do you hate paying extra money at tax time?

I have many clients who love large refunds, and I have some clients who love coming close to breaking even every year.  But no one I’ve met loves paying more after filing their taxes.

Recently, I’ve discussed the potential problems people encounter with tax software programs and how to choose the right tax professional, and here I would like to discuss something else of which we all should be mindful.

If you pay someone to do your taxes, do you judge their performance/expertise based on how much of a refund you get? 

Come on… tell the truth!!  Although we know we shouldn’t, I bet when pressured, most of us would admit that we do.

But guess what?  Paid Tax Professionals know this too!

Most tax preparers know that people will think they’re doing a great job if they simply help them get a large refund, and conversely, they know people will think they don’t know what they’re doing if they don’t.

So most paid tax preparers will try to show you how to get a larger refund.  Makes sense, right?

But here’s the problem:  They usually only tell you to adjust your withholdings!

Every year, when I meet new clients and we discuss the previous tax advice they were given, the most common answer that I hear is, “he/she told me to adjust my withholdings.”

The problem is that adjusting your withholdings has nothing to do with your tax liability.

You may get a larger refund, and it may appear that you’re doing better each year, but you may be paying more to Uncle Sam every year without even knowing it.

The other advice most people receive is to increase their contributions into their 403B/401K/IRA.

This advice is slightly better, and this advice will lower someone’s tax liability in any given year, but there’s another hidden problem most people don’t see:  FUTURE TAXES.

Most people know that all the “tax savings” they’re getting now by contributing to their 403B/401K/IRA will be taxed when they begin withdrawing from their accounts in the future.  However, most people aren’t aware of how much they will pay in taxes in the future, because it’s not an easy thing to calculate.

Do you think taxes will go up in the future?  If you think so, and depending on your specific situation, this may not be the best advice.

So what’s the alternative? 

Talking with a tax professional/advisor who will look at your specific situation, and evaluate your taxes today and in the future. 

Unfortunately, taxes are here to stay.     

So we need to not just think about taxes today and this year, but we need to consider the tax implications for the future as well.

This tax season, I encourage you to find someone who will help you with your tax situation today, and discuss what your tax situation could be in the future.

If you feel you could use some assistance with preparing your 2010 Tax Return, feel free to comment below, email me, or call me anytime.

*Please keep in mind that all the information I post on this site is for general purposes only.  I understand that every person’s situation is unique and should be treated as such.  If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.

 

 

 

 

1.     Monday, April 18^th – The tax deadline for 2011.

Emancipation Day, a holiday in Washington, D.C., falls on April 15 this year.  Since, by law, the tax deadline cannot fall on a holiday or weekend, the deadline for this year  has been pushed to Monday, April 18^th. 

In case you were wondering – Emancipation Day marks the occasion when President Abraham Lincoln signed into law a bill ending slavery in the District of Columbia.   Lincoln signed the bill on April 16, 1862, more than eight months before he signed the Emancipation Proclamation.

2.      Monday, February 14^th, 2011 – When the IRS will be able to process all returns.

Prior to that date, the IRS cannot accept tax returns for processing for taxpayers who are claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917, or the educator expenses deduction. All other returns can be processed immediately.

This delay is due in part to the fact that congress waited until December 17^th, 2010 to make changes to the 2010 tax code.

3.     70,000+  – The number of pages in the federal tax code.

In case you were wondering, the tax code began with 400 pages back in 1913.  Could this be why 82% of taxpayers use a tax professional or tax software?

4.     7.6 billion – The number of hours it takes every year for Americans to prepare their taxes.

Since there is roughly 312 million people in America, that means every man, woman, and child spends 24.4 hours getting ready for tax day.

5.     IRS Commissioner doesn’t file his own taxes.

You know taxes are too complicated when Douglas Shulman, the head of the Internal Revenue Service, gets his taxes done by a professional.

Did you know that roughly 60% of taxpayers pay someone to prepare their tax returns?  That’s roughly 84 million people!

Here are some tips I believe people should consider when paying someone to prepare their taxes.

1.     Make Sure the Preparer is Eligible to File Your Returns

In today’s day and age, this is something we shouldn’t have to worry about, but unfortunately we do.

In fact the California Franchise Tax Board estimates that there may be between 4,000 – 5,000 unregistered tax preparers illegally preparing tax returns for a fee in the state of California.

To help combat this problem, beginning January 1, 2011, new IRS regulations require all paid tax return preparers – including attorneys and CPAs – to have a PTIN, or Preparer Tax Identification Number, in order to prepare federal income tax returns.

So my advice is to make sure your tax preparer is compliant with state/federal regulations. To verify my credentials with California, click here and type “Schurter” next to “Last Name.”

2.     Google ‘Em

Google the person’s name who is going to prepare your taxes.  Check out their website and learn about them and their qualifications.

Consider content over style.  Having a good/bad looking site doesn’t necessarily mean they’re good/bad at preparing taxes, but it may help give you a feel for what to expect.

Something to also consider is whether or not they make an attempt to educate their clients.

I try to do this on my site www.BryanSchurter.com.   Feel free to let me know what you think.

3.     Check out Their Fees

The national average for a basic federal tax return costs between $200 and $500 to prepare.

Obviously, this amount varies depending on the difficulty of the tax return.  Never assume cheaper is better, or conversely, that paying more means you’re getting a better return.

Don’t be afraid to call and ask the person about fees.  With some basic information about your specific situation, the person should be able to give you a good estimate.

Caution:  It is illegal for a preparer to base your fee on an anticipated refund!!     

4.      Are They Available Throughout the Year?

If their office is only open January – April, you may want to re-evaluate your choice.  Issues always come up throughout the year, and you want to be sure you can reach the specific person who prepared your return.

5.      Look for Referrals and Trust Your Gut

After asking your family/friends who they use and trust, go with your gut.

Everyone is different, and everyone has a unique situation that applies specifically to them.  If you’re getting bad vibes from someone, go with your gut, and make the best decision for you.

6.     Response Rate!

Keep in mind, a good and caring tax professional will return your phone calls and answer your questions.

We all get busy, but just because it’s tax season, doesn’t give the tax professional the right to not return your calls or answer your emails in a timely manner.

Don’t ever accept bad service!  You have a choice!

If you feel you could use some assistance with preparing your 2010 Tax Return, feel free to comment below, email me, or call me anytime.    

*Please keep in mind that all the information I post on this site is for general purposes only.  I understand that every person’s situation is unique and should be treated as such.  If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.

I’ll admit that my thoughts on this topic are probably a bit biased.  However, I hope this article provides some thoughtful information that everyone should consider when purchasing a tax software program versus using a professional.

Here’s a True Story  

A year and a half ago I had a client come in to see me – I’ll call her Amy.  Amy had tried to prepare her fiancé’s taxes on her own using a tax software program.  However, she couldn’t figure out why it showed her fiancé having to pay over $11,000 in taxes.  She knew this couldn’t be right based on his income.  Amy told me that she had gone through the program several times over a couple of hours and couldn’t figure out what was happening.

Amy called me and asked if I wouldn’t mind looking over the return for her.  When we finally met, we quickly figured out the problem.  I could easily see why Amy was getting frustrated.

She was answering the questions correctly in the tax software program, she was even inputting the correct numbers, the problem was, it was the wrong question!

There really was no way for Amy to know she was answering the wrong question.

The good news is, once we corrected everything, Amy’s fiancé went from owing over $11,000 to just a little over $2,700.

____________________

Obviously this was an extreme case, and I was happy that I was able to help Amy and her fiancé, but it got me to thinking.  What if Amy’s program showed her fiancé owing $3,500?  Would she have checked to make sure that was accurate?  Would any of us?

How do we really know that the refund amount shown on the tax software program is really the highest amount to which we are entitled?

How do really know that the amount due shown on the tax software program is really the lowest amount to which we should be paying?

There really isn’t any way of knowing without talking to an experienced tax professional.

Many of the tax software programs will guarantee the lowest refund, but how on earth do you know you have the lowest refund if don’t talk to a professional?

Unfortunately our tax code has gotten far too complicated and confusing.  Congress passes laws changing the tax code all time and it really can become very difficult to keep up with all the changes.

I encourage everyone to educate themselves as best as they can in all areas of taxes and finance.

I also encourage people to seek out expert advice with a professional that you trust.

If you feel you could use some assistance with preparing your 2010 Tax Return, feel free to comment below, email me, or call me anytime.    

Last month I briefly talked about how the Bush Tax Cuts May Affect You if Congress did not vote to extend the tax cuts voted on by the previous administration.  I am happy to announce that on Friday, December 17, 2010, the cuts were extended for another two years.  If the cuts hadn’t been extended many of us would have seen higher taxes beginning next year.  As an example, single tax filers would have seen an increase in taxes between $400 – $1,600.  Many middle income families would have seen an increase between $2,200 – $5,500.

One of the major elements of the tax package is a one-year reduction in the payroll tax that funds Social Security.  FICA taxes will drop from 6.2% to 4.2% for most workers – This would save a married couple earning $75,000 per year $1,500 in 2011.  Keep in mind this is only for people who pay into Social Security – so unfortunately (depending upon how you look at it), teachers and other public employees who do not pay into Social Security will not see this reduction in their pension contributions.

Other key points in the tax extension:

• 15% – Maximum tax rates on long-term capital gains and qualified dividends.

• 0% – Tax rates on long-term capital gains and qualified dividends for those in the two lowest income-tax brackets — 10% and 15%.

• American Opportunity Tax Credit – the new college tuition tax credit was set to expire at the end of 2010.  It has been extended through 2012.

Some other popular tax breaks that had expired at the end of 2009 have been reinstated for 2010 and 2011.  They include:

• Choice between deducting state sales taxes or state income taxes

• Tax deduction of up to $4,000 for college tuition costs available to some taxpayers whose
  incomes are too high to qualify for the American Opportunity Credit

• $250 tax deduction that teachers can claim for out-of-pocket expenses for
  classroom supplies – even if they don’t itemize their deductions.

Please keep in mind that all the information I post on this site is for general purposes only.  I understand that every person’s situation is unique and should be treated as such.  If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.