Alltop collects stories about "all the topics" on the web.  They've grouped these collections – "aggregations" – into individual Alltop sites based on topics such as environment, photography, science, military, fashion, gaming, sports, politics, automobiles and, of course, Taxes.  It is sort of a “digital magazine rack” of the Internet. For example, the Taxes page lists many tax sites with links to the most recent posts.

Alltop is a valuable resource for anyone wanting to research, or just keep up on, a certain subject or industry.

Click here for more information on Alltop.

Answer:  There is a maximum limit of $500 per year for all improvements.  And each energy efficient appliance has its own maximum limit (see below).  

This can be claimed on Form 5695.  The allowable credit will carry to line 50 of Form 1040.  Here’s how you can determine your credit:  

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1.       A maximum limit per year of $500

2.       A total limit per year of $200 for windows

3.       A total limit per year of $50 for any advanced main circulating fan

4.       A total limit per year of $150 for qualified natural gas, propane, or oil furnace or hot water boiler

5.   10% of the amount paid or incurred for qualified energy efficiency improvements installed, such as

a.       Exterior windows (including certain storm windows and skylights)

b.       Exterior doors (including certain storm doors)

c.       Any metal roof installed on a home, IF this roof has appropriate pigmented coatings that are specifically and primarily designed to reduce the heat gain of the home

6.       $300 for each item of qualified energy efficient property, such as:

a.       Certain electric heat pump water heaters; electric heat pumps, geothermal heat pumps; central air conditioners; natural gas, propane or oil water heaters

b.       Qualified natural gas, propane or oil furnaces or hot water boilers

c.       Certain advanced main air circulating fans used in natural gas, propane or oil furnaces

<meta http-equiv="Content-Type" content="text/html; charset=utf-8" /><meta name="ProgId" content="Word.Document" /><meta name="Generator" content="Microsoft Word 12" /><meta name="Originator" content="Microsoft Word 12" />The following table shows what Joe Taxpayer installed in his home this year, the costs, and the allowable credit: 

Based on these numbers Joe qualifies for the maximum $500 credit.  Even though the allowable dollar amount per item equals $590, he can’t exceed the $500 maximum allowed.

Keep in mind that the term “energy efficient objects” refers to specific items.  You can’t claim your energy efficient refrigerator, washer, dryer, etc. for this credit.

But there’s more!  If you add qualified solar panels, solar water heating equipment or a fuel cell power plant to your  home (in the United States), there’s an additional credit. 

You’re allowed one credit equal to 30 percent of the qualified investment in a solar panel up to a maximum credit of $2,000.  And another credit for investing in a solar heating system. (Neither can be used to heat a pool or hot tub in order to qualify for the credit).

Here's to Energy Efficiency and getting a tax deduction/credit for your expenses.

With rising gas and food prices the average American’s household budget is stretched paper-thin, so everyone is looking for ways to save money.

Unfortunately, the vast majority of Americans never consider learning how to reduce one of their MAJOR annual expenses: Income Taxes.   

You could save a bundle if you learn how to make better tax-planning decisions!

PRO-TAX will teach you how to reduce your income taxes…for Free with our Nationally Recognized Tax School. Click HERE for more information.

The IRS estimates that the average American overpays their taxes by nearly $400 every year. Do you know how much you are overpaying?

When you know the laws, you are able to take advantage of perfectly legal “tax loopholes” that the IRS allows. You may not realize this but there are literally thousands of ways to reduce your tax burden. And don’t think these laws are just for the rich, you can benefit from them as well!

One great example of saving money on your taxes is by converting non-deductible expenses to deductible ones.

How would you like the IRS to pay part of your lunches, gas for your car, home mortgage, even tickets to shows or sporting events?

All this can be done and much more, but you must know the laws to implement these strategies properly. PRO-TAX teaches the basics of income tax law in our Tax School starting September 16. If you become an employee, you will be eligible for free continuing education classes that will give you more in-depth knowledge which you can use to save on your own taxes. These continuing education classes will also make you eligible for a higher base pay with PRO-TAX.

When you finish tax school, you may also want to reduce your taxes by planning in advance. Most people rarely think about taxes until tax season, which can be a costly mistake. If you plan properly you could reduce your taxes and keep more money in your pocket every month. Many people use their tax refund as a type of “forced savings plan” so they will receive a big check after Christmas. The problem is that when you pay the IRS much more than you owe, you’re giving them an interest-free loan. It may be better to reduce your withholding tax so each paycheck is higher and your tax refund is lower.

The key to taking advantage of the IRS laws is through having the proper tax knowledge. When you attend our tax school, your eyes will be opened to a world of financial options you likely never knew existed. 

If you would like to learn more about PRO-TAX’s Nationally-Recognized Free Tax School, click HERE.

Every day the television news is filled with segments about companies laying-off thousands of employees. These types of stories are emotional and therefore tend to grab the headlines. What you don’t hear are accounts of business sectors that continue to prosper regardless of the economy. Steady growth, year after year, is not something that the media cares to report.

Tax Preparation is one of those segments that continue to expand year after year.  To a large extent this growth is the result of the increasing complexity of the tax code and congressional pressure on the IRS to increase the volume of returns that are electronically filed. Congress wants the IRS to convert more taxpayers from paper to electronic returns because of cost-savings and improvements in accuracy. Unfortunately, the IRS is far behind the goals set by Congress.

It’s true that more people are filing their own taxes online, but most of these people were already doing their own taxes.  What you may not know is that the number of people using a paid preparer over the last 10 years has gone through the roof!

Taxpayers Using A Paid Tax Preparer: 1997-2007

2007-     84 million

1997-     61 million

The paid preparer market has increased by over 23 million customers between 1997 and 2008!

All these factors are important if you are currently employed in a business that is losing ground in these tough economic times, or if you are considering a career change.

As you might expect, as the tax preparation business continues to expand, the demand for trained tax preparers i.

When most people think about professional tax preparation for individuals, they believe they must spend years in school learning to be a “certified public accountant.” Nothing could be further from the truth.  To become a highly-sought professional tax preparer you don’t have to spend years in school or a small fortune on tuition. In fact, PRO-TAX offers a Free Tax School that will teach you in just eight weeks how to prepare over 80% of the tax returns we normally see come through our offices. We also offer free continuing education classes to our employees that will teach you how to handle the other 20%.

The job market today is as competitive as it's ever been. To stand out from the crowd you need extra skills. Taking our Tax School will enhance your credentials and make sure you have a better chance of success in any job search.

If you’d like to work in a recession-proof, government-regulated industry or just want to enhance your resume, attending PRO-TAX’s Nationally-Recognized Tax School can take you where you want to go!

Tax School starts September 16 with morning and evening classes available. If you would like more information just click HERE.  

Not so anymore!  The law now states you may be able to exclude up to $250,000 of capital gain from the sale of your home if you’re single (up to $500,000 if you’re Married filing Joint) each time you sell your home.  That’s right!  EACH TIME YOU SELL YOUR HOME.  There are a few provisions, though: 

1. You must have owned the home for at least two of the five year period preceding the date of the sale (Example:  If you sold your home on December 31, 2008, you had to have OWNED the home no later than December 31, 2006)
2. You must have lived in the home as your MAIN RESIDENCE for two of the past five years.  So, if you bought the home in 2003 and rented it for a period of time, you must have lived in that home, as your primary residence, for two years.
1. The housing bill that was signed into law on July 31, 2008 requies that you INCLUDE in income the capital gains for the amount of time the property was not your main residence, beginning in January, 2009.  In the example above, nothing would change and all capital gains, up to the allowable amount, could be excluded.  If, however, you owned your home from 2000 through 2010, and did not use it as your main residence for all of 2009 and 2010, you would need to include in income 20% of the capital gain, and report it on Schedule D. 

If you don’t meet the ownership and use tests, the IRS might still allow you exclude a reduced maximum amount of the gain realized on the sale of your home.  Qualifying circumstances include: 

1. Sale of your home due to health reasons
2. Sale of your home due to a change in place of employment
3. Certain unforeseen circumstances
1. Divorce or legal separation
2. Natural or man-made disasters resulting in a casualty to you or your home
3. Involuntary conversion of your home. 

Now, suppose you saw a greater capital gain than the allowed exclusion?  You’d have to claim as income all gain above the allowed exclusion on Schedule D (Capital Gains and Losses). 

Below are some FAQs regarding the sale of your home: 

My grandmother left me her home in her will.  I just sold it.  Do I qualify for the exclusion, or is this taxable income? 

This is considered the sale of an inherited property, not the sale of your home.  To determine if the sale is taxable, you’ll need to determine your basis in the property.  To do this, you’ll need to determine the following: 

1. The fair market value of the property on the date of your grandmother’s death.
2. If the executor of the estate chooses to use alternate valuation, you must determine the fair market value of the property on the alternate valuation date. 

The difference between the actual selling price and the FMV will determine your capital gain or loss. 

What form do I use to report the sale of my home? 

Report the sale of your home on Schedule D. 

If I take the exclusion for the sale of my home this year, will I be able to exclude any future sale of my new home? 

There is no limit on the number of times you can exclude the gain on the sale of your principal residence, with the exception of the two year waiting period and as long as you meet the ownership and use tests. 

I sold my vacation home this year.  Can I exclude the capital gain? 

No.  Your second home is considered a capital asset and does not qualify for the exclusion.  You will need to report the sale on Form 1040, Schedule D. 

I sold my home, but suffered a loss instead of a gain.  Is the loss deductible? 

No, the loss on the sale of a personal residence is a nondeductible personal loss. 

For further information, check out IRS Publication 523.

This article is our way of showing honor to those proud and brave men and women who serve in our Armed Forces.  It addresses tax situations primarily for those members of the Armed Forces remaining with us, or those whom the fallen have left behind. 

Recently, President Bush signed into law the HEART Act (Heroes Earning Assistance and Relief Tax Act).   This Act does the following: 

• Permanently extends the availability of the election to treat combat pay that is otherwise excluded from gross income under section 112 as earned income for purposes of the Earned Income Credit. 
• Permanently extends the limited exception from the first-time homebuyer rule for veterans under the qualified mortgage bond program. 
• Modifies USERRA to allow the day prior to the date of a service person’s death to be treated as the date the employee returned to work.  This will trigger payment of benefits under any qualified retirement plans.  It makes permanent the special rules permitting penalty-free withdrawals from retirement plans, and permits employers to make certain contributions to a qualified pension plan on behalf of an employee who becomes disabled or is killed in combat. 
• Allows military death gratuity or SGLI payment to be contributed to a Roth IRA, or to one or more Coverdell education savings accounts (notwithstanding the contributions limits that otherwise apply, but not more than the sum of the gratuity and SGLI payments that the individual receives). 

The bill enacts more than just those items noted above.  For more detail, see the bill in it’s entirety.  Plus there are the deductions, credits and exemptions that have been in effect for some time. 

While many deductions, credits and exemptions are the same as for civilians, military personnel (and sometimes their spouses) do earn special treatment in some circumstances.  For more detail, see Pub 3 on the IRS website. 

Exclude the following from Income when filing your taxes (they should not be reported on your W2): 

• Basic Allowance for Housing (BAH)
• Basic Allowance for Subsistence (BAS).
• Housing and cost-of-living allowances abroad.
• Overseas Housing Allowance (OHA)
• Combat Zone Pay (note, there is a limited amount for officers).
• Family allowances for emergencies, evacuation to a place of safety, separation and certain educational expenses for dependents.
• Death allowances:  burial services, death gratuity payments to eligible survivors, travel of dependents to burial site.
• Certain moving allowances (Dislocation; military base realignment/closure benefit; move-in housing; moving household and personal items, trailers or mobile homes; storage; temporary lodging and associated expenses).
• Certain travel allowances (annual round trip for dependent students; leave between consecutive overseas tours; reassignment in a dependent restricted status; transportation for you or your dependents during ship overhaul or inactivation; per diem).
• Professional dues – you can deduct dues paid to provessional societies directly related to your military position (but not to an officers’ or non-commissioned officers club). 

And there’s more…

Housing.  If you receive a BAH (Basic Allowance for Housing), you can still deduct your mortgage interest and real estate taxes on your home – even if you paid them with your BAH.

Combat Zone Pay.  Besides active duty pay earned in any month you served in a combat zone, you can also exclude a reenlistment bonus if the voluntary extension/reenlistment occurs in a month you served in a combat zone.  And pay for accrued leave earned in any month served in a combat zone (determined by the Department of Defense).  And, if the entire year of service required to earn the repayment of a student loan was served in a combat zone, the entire repayment made because of that year is excluded.  This also applies for partial year combat zone/repayment. 

The above rules can also apply to commissioned officers (other than commissioned warrant officers).  If you are a commissioned officer, you can exclude your pay according to the information above, but the amount of your exclusions is limited to the highest rate of enlisted pay for each month during any part of which you served in a combat zone. 

And on sad note, there are also “benefits” at the death of one of our military personnel.  Tax liability can be forgiven if a member of the U.S. Armed forces dies while in active service in a combat zone; from wounds, disease or other injury received in a combat zone; or, from wounds or injury incurred in a terrorist or military action.  Tax for the year of death and possibly for earlier years can be forgiven.   

To claim this forgiveness, write on the top of the 1040, in bold, the name of the combat zone and KIA (example:  “Operation Enduring Freedom – KIA”).  Attach a completed Form 1310 (Statement of Person Claiming Refund due to a Deceased Taxpayer), and a certification from the Department of Defense or the Department o State.

Recently, the IRS has been taking heat because of the way they have handled responses to these mail audits.  Who’s giving them heat?  The National Taxpayer Advocate (NTA). 

Here’s an example of what’s caused the consternation of the NTA: 

In one case, a taxpayer sent the documentation requested by the mail audit by certified mail, with return receipt requested.  Fifteen days later, she received a “statutory notice of deficiency”.  When she called the IRS and told them she had proof that her documentation had been received, she was told that the documentation was “probably” sitting in an IRS mailroom. 

In other instances, deficiency notices were being sent out before the deadline for documentation had expired. 

So what should you do? 

1. Do not ignore an IRS notice.
2. Respond promptly – don’t wait until the last minute to send your response or your documentation.
3. Send your records certified, with return receipt requested.  This gives you additional evidence that you sent the information on time.
4. If you’ve sent in your documentation and receive a follow up letter from the IRS stating that they haven’t received your records, call the IRS at 1-800-829-1040.
5. If, after all this, you still feel you’re in the right and the IRS has incorrectly tabulated your return, contact the National Taxpayer Advocate at 1-877-777-4778. 

Each state has their own limits with some more generous than others.  Click your state in the table below to find out the specifics for your tax holiday: 

All of us at PRO-TAX would like to thank the teachers around the world for all you do for our children.  Besides teaching them subjects (reading, writing, ‘rithmatic, etc.), you are often role models! 

Your elected officials think you’re great too!  As an eligible educator you may be able to deduct up to $250 of expenses you paid for purchases of books or classroom supplies.  Here’s how it works: 

ELIGIBLE EDUCATOR:  To be an eligible educator you must:

• Work in a public or private elementary or secondary school
• Work at least 900 hours during a school year
• Be a Kindergarten through Grade 12 teacher, instructor, counselor, principal or aide 

QUALIFYING EXPENSES:  Qualifying Expenses are unreimbursed expenses you paid or incurred for:

• Books
• Supplies
• Equipment (including computer equipment, software and services)
• Materials you use in your classroom
• *Supply expenses for courses in health and physical education are qualified only if they are related to athletics. 

TO BE DEDUCTIBLE, qualified expenses must be more than:

• Savings bond interest excluded on Form 8815
• Non-taxable distribution from a Qualified Tuition Program
• Tax-free withdrawals from your Coverdell Education savings account 

If you (and your expenses) qualify, you can deduct up to $250 of the total expenses you incurred.  How do you claim this deduction?  They are claimed on Line 23 (Educator’s Expenses) of Form 1040.

But you could also receive a credit from Uncle Sam for purchasing that vehicle.  Here’s a list of 2008 model vehicles that qualify for the Hybrid credit.  And here’s a list of the Qualified Alternative Fuel Motor Vehicles, and their credit amounts.

According to the IRS, “Consumers seeking the credit may want to buy early since the full credit is only available for a limited time.”

In addition to certification, the following requirements must be met to qualify for the credit: 

• You placed the vehicle in service during your tax year;
• The original use of the vehicle began with you;
• You acquired the vehicle for use or to lease to others, and not for resale; and
• You use the vehicle primarily in the United States.

The deduction is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.

You can report this credit on Form 8910.   

Besides the credit you receive from the Federal government, some states also offer incentives to purchasers of hybrid vehicles.  There’s a complete list of incentives available at the whybuyhybrid website.

However it happened, the “wanderlust” is upon you.  You mail resumes, complete interviews and are offered two positions.  But wait, both jobs are so far away that it doesn’t really make financial sense to commute.  

Could it pay for you to move?  Maybe.  The IRS allows you to deduct many expenses of moving to a new locale to take a new job (or even to take the same job in the same company, but at a different location!).  You’ll need to meet a few tests to see if you qualify for these deductions.  Here’s how it works: 

TIME - If you start a new job in a new location, you’ll need to move to your permanent residence within one year of starting the position. 

DISTANCE - This one’s a little tricky.  It starts with your FORMER residence.  If you worked 7 miles from your old home, then your new “office” must be 57 miles from your old home.  That’s right, from your OLD home… 

MORE TIME - This is the amount of time you actually work in the new area.   You have to work for 39 weeks of the first 12 months after your arrival at your new home.  AND you have to work a total of 78 weeks during the first two years.  This does not mean that you have to wait two years to claim your moving expenses. It does mean that if you leave the area, you’ll have to “pay back” the deductions to Uncle Sam. 

So, what’s deductible? 

• Transportation of persons and goods, using the shortest, most direct route between the two locations (in other words, you can’t go from Baltimore, MD to Charlottesville, VA via Tampa, FL)
• Actual gas/oil for the trip, OR the standard mileage rate.
• Parking and tolls for the trip (keep your receipts!)
• Packing, crating and transporting goods to your new home
• Connection/disconnection of your utilities
• Lodging during the move (if you move cross-country and drive to get there, you can deduct motel stays for you and your family) 

What if your employer pays for a portion of your moving expenses?  If that’s the case, the reimbursement will be shown in box 12 of your W2. 

Where to report all of this?  On Form 3903.  Of course, if you are fed up with unpacking boxes, and don't want to deal with IRS Forms, we would be happy to help you figure out how to maximize the Moving Expense.  Just visit any PRO-TAX office. 

All is not lost!  If it’s a math error, the IRS will usually correct the return and send you the appropriate refund (or contact you to let you know that you owe them less than you originally thought).  If it’s a missing W2 or 1099, the IRS will typically catch that too, make adjustments to your return and request a copy of the document. 

But if it’s a receipt for your business, unreimbursed employee mileage expenses, or other items that the IRS wouldn’t know about: you should file an amended return. 

According to the IRS, you should file an amended return if any of the following were reported incorrectly: 

• Your filing status (Example: you filed single, but should have filed Qualifying Widow(er)).  The only time you CAN’T change your filing status when amending a return is from Married Filing a Joint return to Married Filing Separately.  If you were married when you originally filed, you’re married when you amend – whether you like it or not!
• Your dependents (Just because your child no longer qualifies you for the Child Tax Credit doesn’t mean you should claim him/her for a dependency exemption)
• Your total income
• Your deductions or credits 

You’ll need to use Form 1040X to file your amendment, being certain to enter the tax year of the return you’re amending.  If you’re amending multiple years, you’ll need a 1040X for each year you amend.  And don’t forget to file an amended return for all state returns that you filed! 

This form has three columns.  Column A shows data from the ORIGINAL return.  Column C is used to show the correct information.  The difference between the figures is shown in Column B.  You’ll also need to give a written explanation (space is provided on the form) for the specific changes you are making and the reason for each change.  Attach any changed schedules or forms that impact the 1040X. 

So, what is your timeline?  First, do not file an amended return until you have received your refund.  You can still cash that refund check while waiting for any additional refund.  Second, you must file within three years from the date you filed your original return, or two years from the date you paid the tax, whichever is later, to claim a refund. 

For more information, you can click here, or come to your local PRO-TAX office.

First – the camp must be a DAY camp.  No overnight camps.
Second – you can only claim this deduction for children under the age of 13.
Third – the enrollment must be made so that you (or your spouse) can work, or search for work.
Fourth – you (and your spouse) must have earned income, or be a full time student.
Fifth – You’ll need to have the summer camp’s name, address and identifying number.
Sixth – you cannot file as Married Filing Separately. 

Here’s the really neat thing: it doesn’t matter if the camp is for computers, soccer, swimming, scouts, etc.  As long as it meets the requirements above, the expenses may qualify!

So, how do you determine the credit?  It’s 20%-35% of non-reimbursed expenses (that means that your employer doesn’t reimburse you for child care), up to $3,000 for one child and $6,000 for two or more children.  The credit percentage is based on your income.  According to the IRS, “the 35% rate applies if your income is under $15,000; the 20% rate [applies] if your income is over $43,000”. 

You can claim this credit on Form 2441.

Millions of Americans are giving the IRS an interest free loan each year.

How?  By the way they determine their exemptions and deductions on their Form W4. 

What’s a W4?  Most folks don’t even realize that a W4 is the form the IRS requires (and a variation is required by most states) in order to determine how much tax should be withheld from your income each pay cycle and sent to Uncle Sam and the state. 

You complete Form W4 when you are initially hired by a company; but then you never see it again.  And here’s where most folks give away money.  Changes occur in everyone’s life, and those changes can impact your tax liability.  Let’s take Bill for example:

Bill started his first “real” job right out of college.  He was hired by a major corporation and he intended to stay with them for a long time. When Bill was first hired, he completed a W4, stating that he was single with no dependents.  His federal taxes were held at the higher single rate. 

After three years of employment, Bill married Denise.  Bill never changed his W4 to show that he now had a dependent exemption, so he was still having taxes withheld at the higher single rate.  Denise also didn’t change her W4, so her taxes were also being withheld at the higher single rate.  They got an enormous refund from the IRS after their first year as a married couple.  Sounds great, right?  Wrong.  Because while they were having their money held by Uncle Sam, they could instead have been investing that extra money in their company sponsored 401(k).  And it could have been earning interest (remember, the IRS doesn’t pay interest on the money you “deposit” with them).  So, they’ve lost money, even if they invest their refund.

Three years later, Bill and Denise give birth to their first child.  Still no changes to their W4.  Still getting a refund, but this year it’s even bigger!  They could have been investing that money for their child’s education.  This isn’t to say that Bill and Denise are struggling because of their “choice” to not change their W4.  They just could have used that money differently and possibly be better situated for the future..

Bob and Donna have a different situation.  Bob is self-employed and Donna works in a salaried job.  Donna’s W4 states that she is married, with two children, so she is taxed at a lower rate.  Each year, Bob and Donna owe money to the IRS.  Donna could change her W4 to show that she is single (or has fewer dependents).  Her employer would then deduct taxes at a higher rate. This would offset, and possibly eliminate, the taxes Bob owes from his self-employment.  It would also reduce the amount of penalty they pay each year for under-estimating their tax liability.

As your circumstances change, so should your W4.  Here’s a list of the various Personal and Financial Changes that might change your tax liability: 

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The IRS has an online withholding calculator that can help determine your general tax liability and how to tax special circumstances income such as interest income, medical expenses, etc.  Confused?  Come to your local PRO-TAX office and we’ll be happy to help you!

The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through Dec. 31, 2008. This is an increase of eight (8) cents from the 50.5 cent rate in effect for the first six months of 2008.

The IRS normally updates the mileage rates once a year in the fall for the next calendar year; however, with the increasing costs of gas, the IRS was receiving calls for relief.  Some of those calling for relief include the National Treasury Employees Union and Senator Norm Coleman. 

The IRS got the message.

"Rising gas prices are having a major impact on individual Americans. Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile," said IRS Commissioner Doug Shulman. "We want the reimbursement rate to be fair to taxpayers."

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The new six-month rate for computing deductible medical or moving expenses will also increase by eight (8) cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The new rates are contained in Announcement 2008-63 on the optional standard mileage rates.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Mileage Rate Changes

The purpose of this article isn’t to tell you how to organize your information; there are as many systems as there are people.  As long as you organize your records regularly (no, this does not mean throwing all receipts in one big box, no matter what the receipt is for) your tax life will be much smoother.  What’s important is to know “what to keep” and “how long to keep it.”

What To Retain

Here are the things you should keep track of:

• Personal property taxes
• Real estate taxes
• Home mortgage interest
• Gifts to charity – be certain to get receipts from the organization
• Volunteer expenses – miles and out of pocket expenses
• Unreimbursed Employee Expenses
•           Tools
•           Uniforms
•           Dues
•           Subscriptions
• Unreimbursed Medical Expenses
•           Health insurance premiums you paid
•           Prescriptions
•           Vision care (glasses/contacts)
•           Dental care
•           Hospital bills you paid out of pocket
•           Long term care insurance premiums
• Educational expenses
• Daycare receipts
• IRA contributions
• Stock transactions
• Tax preparation fees

How Long To Retain Records

Records to keep forever:

Prior years tax returns, and their supporting documentation (W2, 1099).  You may never need them, but do you want to be audited for a return from 10 years ago and not have ANY of your paperwork?  Not even the return itself?  Here’s the point to understand: there is no statute of limitations when a return is fraudulent or when no return is filed.  So, if the IRS comes to the conclusion that they never received that return from 1991 – there is limit on your liability.  You need to be able to prove that you filed it!

Sold your house or other property?  Keep the closing statement forever.

Records to keep for at least six years

• Cancelled checks (for tax related items)
• Financial statements
• Mortgage statements
• Receipts for items you’ve claimed on your return
• Credit Card statements (that show purchases of items you’ve claimed on your return)
  

Records to keep for at least three years

• Bank statements

If you have an item that is not included in the list above, or you have a question about one of our suggestions, feel free to contact your local PRO-TAX office to get some Tax Spring Cleaning help.

Since tax law is complex and constantly changing, it’s no surprise that many taxpayers have misconceptions about the rules that apply to them.  Many count on provisions that have expired, or apply to someone with different circumstances.  In this article we will address some of the most common myths about taxation in the United States:

I don’t need to rush to claim my refund, because I can always collect money owed to me by the Treasury. 

The IRS will not issue a refund more than three years old.  On April 15^th of this year, the books will close on tax year 2004, and any unclaimed refunds will disappear forever.  Last year, the IRS stated that about 1.8 million people who had not filed their 2003 federal return had unclaimed refunds totaling about $2.2 billion!  So, do you want your money, or do you want to let the government keep it?  If you want it, we can help you get it.  Visit any of our local offices to help you file a return. 

If I sell my home, I need to reinvest the money in a new one quickly, or I could end up owing a lot of tax.

This provision expired almost ten years ago.  Under current law you may exclude up to $250,000 of gain if you’re single, and $500,000 for a couple filing jointly.  You must have owned and lived in the house for two of the past five years, though there are exceptions to that rule if certain circumstances led to the sale.  Congress recently extended the $500,000 exclusion to widows and widowers for two years after their spouse’s death, so that these taxpayers don’t feel the need to rush a sale, effective with the 2008 filing year.

Note:  You cannot deduct a loss on the sale of your home.

I want to deduct my state and local sales taxes, but:

• The law expired
• The state where I reside has an income tax
• I have to use the IRS tables to figure the deduction, and that’s all I can take.

1)      The law expired for tax years after December 31, 2007, so it still applies to returns being filed for 2007.  It could be renewed again before the end of the year for 2008.

2)      The deduction is more useful in states without income tax, but it can sometimes benefit those in states with income tax. 

3)      The IRS does have tables based on income, exemptions, and the tax rate where you live, but big-ticket items (cars, boats, etc.) may be added to the total.  This provision can be particularly beneficial in the year a taxpayer buys a costly item like a car or boat.

As a student, I don’t have to pay taxes

Students must report their income the same as other taxpayers.  Many do not pay taxes because their income did not reach the filing threshold of $5,350 of earned income for 2007 ($5,450 for 2008).   

My dependent has a job now, so I won’t be able to claim him anymore

Each dependent on a tax return allows the taxpayer an additional exemption, which is a subtraction from income before tax is calculated.  For 2008, the subtraction is $3,500 per exemption.  This can make a significant difference in the year’s tax bill. 

For children 18 and under and students 23 and under, it is support and not income that determines who gets the exemption.  If the parent still pays more than half of their child’s living expenses, the exemption belongs to the parents.  The IRS counts transportation and recreation expenses in addition to food, lodging, clothing, and medical expenses, so that $300 surf board your child bought actually counts as support, as so does the TV you bought for his room. 

The child’s income does factor if they have reached 24, or if they have reached 19 and aren’t a full-time student.  $3,300 is the most these older children can earn and still be claimed as dependents. 

I’m married, so I have to file a joint return with my spouse

If you are legally married on the last day of the tax year, you can’t file as single, and normally you can’t file as head of household.  But, if you and your spouse lived apart the last six months of the year, and you paid most of the cost of maintaining a home for you and your child (step-child, foster child), you are “considered unmarried” by the IRS, and are allowed to file as head of household. 

And there’s also another option.  Married filing separate is a status that is always available to married taxpayers, it is just rarely beneficial.  Many credits, including the earned income credit, are not allowed to separate filers, among other restrictions.  For a few taxpayers, there are advantages that outweigh the disadvantages.   

I’m more likely to be audited if I complete an extension to file my taxes.

No.  There’s no connection between requesting an extension and being audited.

I shouldn’t file my tax return until I have the money I owe the IRS.

While the IRS doesn’t LIKE it if you don’t pay the money you owe them, they REALLY DON’T LIKE it if you don’t even file your return.  As a matter of fact, it’s a crime to not file your return.  So, file your return, and pay what you can.  The IRS will contact you to set up a payment program – but it wil include interest and penalties on what you haven’t yet paid.

My parents live in a nursing home, and I’m paying their expenses, but I can’t claim them as dependents.

This rule doesn’t apply to your parents or your children.  If you support your parents, you can claim them as dependents; no matter where they live.

My grandmother left me some money as an inheritance.  It’s nice, but now I have to pay taxes on it.

Not true.  The tax on the money left to you has to be paid by the estate of the person who died.    This only applies to income you received as an inheritance.

I receive tax exempt income, so I don’t need to worry about paying tax on it!

Don’t be so sure of that.  You may not have to pay FEDERAL tax, but you may have to pay STATE tax on this income.

I have a retirement plan where I work, so I don’t need to set up an IRA.  It won’t help me from a taxation standpoint anyway.

If your income is below $35,000 you may be able to deduct all or part of your IRA contribution, regardless of whether you have an employer sponsored retirement plan.

PRO-TAX is here to help “dispel myths” and help you get the biggest refund possible.  If you have more questions about these topics please visit one our offices.

NOTE:  An Extension of Time to File is not an “Extension of Time to Pay.”  The Extension gives you an automatic six months of additional time to get your paperwork together and file that return.  But, if you owe more than what you paid with your estimate, you’ll be accumulating penalties and interest on the difference, so don’t take the entire six months to do this. 

When filing your Extension of Time to File, you should estimate what you think you owe to the IRS.  This should not be “pulling numbers out of thin air.”  You still need to go through your receipts and tax documents and get them somewhat organized.  From here, you can estimate both your income and your expenses, and then approximate what you owe Uncle Sam.  Keep in mind that this is an ESTIMATE.  And, you should pay what you estimate you owe at the time you file Form 4868. 

Remember, a delay in filing your tax return will also delay your receipt of your economic stimulus payment, if you qualify to receive one, since payments are based on the tax return. 

If you have questions, or need assistance completing Form 4868, please visit your local PRO-TAX office.  We would be happy to help you file the extension correctly and on-time.

You know what I mean – you go through your closet during spring cleaning and decide to donate a winter coat, two pairs of boots, a couple of sweaters, pants and jeans.  And while you’re doing that, your children are also cleaning out their closets of games and stuffed animals. 

Or, you’ve just purchased new living room furniture and donate the old to a charitable organization.

How much is all that worth?  You can’t deduct the price you paid for the goods.  But, really, what is the value of all this?  This is what you can deduct.

First, you have to make sure that the items are in decent shape (no holes, rips, bad stains, etc.)  Second, you need to get a receipt from the organization to which you donated the goods.  Lastly, you will need to determine the Fair Market Value of the goods donated, as that is what you can deduct.  

There are several ways to best figure out the fair market value of goods donated:

1. Visit a local thrift shop and try to determine the value from their pricing.  Best advice:  choose the lowest price.
2. Visit the Goodwill or Salvation Army valuation websites.  Both of these sites offer easy to use tools and lists to determine the value of donated items (clothing and household appliances).
3. Visit the IRS website.  IRS Publication 561, Determining the Value of Donated Property, lays out in great detail how to best value your donated property.

What happens if you don’t file by the deadline?  Well, that depends.  Let’s look at a few situations and their outcomes:

Jane doesn’t think she’ll owe any taxes, but she’s also not expecting a refund.  Jane decides it’s no big deal if she files her taxes when it’s more convenient.  Later in the year, before Jane has had a chance to file, the IRS sends a notice because they believe she owes taxes.  If she receives her letter before October, she’ll still be able to Efile, but if not, she’ll need to file a paper return.  AND, if she ends up owing taxes when she files, she’ll be paying the tax, plus interest and penalties.

Jill KNOWS she doesn’t owe taxes, but she expects a small refund.  Jill decides it’s not worth it to file.  When the IRS reviews her information (that’s right – the IRS does get income information on you from your employers), they determine that Jill is right – she doesn’t owe, but she should get a refund.  They don’t send any letters.  Four years later, Jill finally remembers about that small refund (she could use the little extra cash now).  But it’s too late – you can only file for a refund going back THREE YEARS.  Jill lost that money.  The really sad thing?  Jill wouldn’t have gotten just a small (say $50) refund.  If she’d gotten her taxes prepared, she would have received a $1,500 refund!

Jessica believes she owes the IRS a good chunk of change (in the range of $2,000).  Jessica also knows that she doesn’t HAVE $2,000.  So she decides to play Tax Roulette, doesn’t file her taxes and waits to see if the IRS catches up to her. See, she’s thinking that if they don’t catch it in three years (she heard about that three year rule), then she won’t have to pay.  WRONG!  While the IRS won’t send any refunds after three years, they can go back as far as they want to collect back taxes.  In the meantime, penalties and interest are piling up – not to mention the concern that the IRS may consider Jessica a tax evader.  That $2,000 could quickly turn into $4,000 or more.

In each of these scenarios, the taxpayer loses.  So what would have been the best solution?  In every case – FILE THOSE TAXES.  Let’s look again:

Jane would have realized that she owed a small amount of tax if she filed her return.  She could have paid that, made adjustments in her withholdings with her employer, and only been out a little bit of money.  And she could have set it up to either get a refund in the future, or at least not owe any tax.

Jill would have gotten that refund; plain and simple. 

Jessica would have definitely still owed taxes. It’s possible she would have owed less than what she thought.  Either way, she could have filed and sent in what she could afford.  The IRS would have worked with her to set up a repayment plan.  And, like Jane, she could have made adjustments in future withholdings with her employer that may have offset some of that tax liability. 

And if any of them had come to a PRO-TAX office, we could have made suggestions to reduce their tax liability – now and in the future.

Here’s something interesting… Almost every state that is close to Virginia has to file by April 15 as well.  EXCEPT Virginia and Delaware!  Virginia and Delaware have filing due dates of May 1.  But, Alabama, Kentucky, Maryland, North Carolina, Pennsylvania, Tennessee and West Virginia all have filing due dates of April 15. 

You’d be surprised at how many people e-file their Federal return and decide they’ll wait to file their State – especially in Virginia where the due-date is later than the Federal.  You’d also be surprised how many people FORGET to file their state return in time because of this.  If you are waiting to file because you owe state taxes, well, filing early doesn’t mean you have to pay early.  You can simply hold your payment until the due date!  And if you forget to file, then you’ll owe not only the tax, but also interest and penalties.

Best practice?  File your state with your federal return.  See below to find your state’s Department of Revenue due-date.