Your Taxes: Tax Season Basics
By now, there is a good chance your W-2’s, 1099’s and a wide variety of other tax documents have arrived in the mail. Perhaps you have them in a pile, perhaps you have them scattered on the floor of your car. Either way, taxes are sure to be on your mind, and I wanted to share the answers to some of the questions I hear most often in hopes that they will help you as well!Who needs to file a return? It’s comes as a surprise to many people that not everyone is required to file a tax return. If you made less than $10,000 of income, not including Social Security income, you may not need to file a tax return. If you care for an elderly parent, you may want to double check that they are not filing returns needlessly. All too often, I see retirees continue to file returns when they are not required, which costs money they don’t need to spend. Regardless of total income, if you had self-employment earnings of $400 or more, you are required to file a tax return. According to the IRS, you may still want to file a tax return if you had federal withholdings, have children and are eligible for the child tax credit or American Opportunities tax credit, or can claim the First-Time Homebuyers credit.When does my child need a tax return? The bar keeps changing on the Kiddie Tax, but for 2010 and 2011, you need to start thinking about your child’s taxes if they have unearned income greater than $1,900 and the child us under age 18 or a full-time student under age 24. Unearned income includes stocks, bonds, and dividends. What are the current mileage rates? For 2010 taxes, you need to use 50 for business mileage, 16.5 for medical and moving mileage, and 14 for charitable travel. For 2011, these rates jump a bit to 51, 19 and 14 respectively.How long should I keep my records? My rule of thumb is to keep all records related to a tax return for seven years after the date the return is filed. The IRS statute of limitations is three years, but they can go back seven years for fraud, and I can’t think of too many things worse than being accused of fraud and not being able to support your claims! On top of that, you should keep any records related to large asset purchases, such as your home or a rental property, for as long as you own that property plus seven years. Most of us have gotten out of the habit of tracking our home’s cost basis, because in recent years tax law doesn’t require you to pay capital gains tax on the sale of most residences, If tax law changes in the future, could you come up with the 10-20 years of receipts you need to calculate your basis? Is it too late to call? This is my favorite question of all, and I think my answer applies to all tax preparers. Each year, I hear a few dozen times “is it too late to call, are you too busy?” Let me take this opportunity to express that tax preparers are quite busy this time of year, but we plan for that! Do not hesitate to call an expert, even if it’s April 15th! We are here to help, and it’s always better to prepare your return correctly the first time, even if it means filing an extension, then to have unanswered questions because you don’t want to interrupt our busy time. Michele Knight, owner of Knight Accounting & Technology, is a CPA and QuickBooks ProAdvisor based in Dillon. For more info and to contact her, visit http://www.cpamichele.com.
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